Showing papers on "Profitability index published in 1987"

Multinationality and Performance among British Manufacturing Companies

Abstract: Over the period 1972–84, profitability among 304 large, British manufacturing companies was positively related to their degree of multinationality. Moreover, increases in overseas production were strongly associated with increases in sales and profitability. The profitability of multinational growth over the whole period was independent of its destination, supporting the view that the primary source of the superior performance of multinationals was competitive advantage rather than the higher rate of profit in the industries of other countries.

Life After Takeover

Abstract: Economic consequences of takeovers are investigated by analyzing profitability of enterprises acquired a s a direct or indirect ("white knight") consequence of tender offer s. Target companies' pre-tender profitability averaged 0.97 percentag e points below peer industry norms. Nine years after takeover, acquir ed lines of business had operating income/assets percentages 3.10 poi nts below those of non-tender lines with similar industry bases, mark et shares, and merger accounting methods. Most of the targets' postta keover profit decline stemmed from asset value writeups. There is no indication that on average the acquirers raised their targets' operat ing profitability, net of merger-related accounting adjustments. Copyright 1987 by Blackwell Publishing Ltd.

The Uncertainties of Management in the Management of Uncertainty

Abstract: There is widespread agreement that in the course of the recent economic crisis, the initiative in industrial relations has shifted to the employers (Strauss 1984). Although employers originally played an important part in the shaping of modern industrial relations systems, in the last decades they have mainly reacted to trade union projects and demands. This has now changed. But what exactly the change means is far from clear. The notion of "initiative" implies an element of strategic freedom which, in the face of an imperative toward profitability and the need to retain control over the labor force, employers may simply not have. Moreover, employers, like any other social group, may act either as individuals or collectively, and their mode of action is likely to make a difference with respect both to the kind of objectives they pursue and the resources available to pursue them.

The Convergence of Profits in the Long Run: Inter-Firm and Inter-Industry Comparisons

Abstract: This paper considers the extent to which the short-run dynamic behavior and long-run equilibrium levels of profitability differ among firms within the same industry. Movements in profits are modeled in terms of firm specific deviations from average industry profits, and industry specific deviations from economy-wide average returns. Applied to a sample of 217 large U.K. firms, 1951-77, the results suggest that considerable heterogeneities exist within most industries. That is, most firms' profitability experience differs considerably from those of their closest rivals. Copyright 1987 by Blackwell Publishing Ltd.

Human Capital, Information, and the Early Adoption of New Technology

Abstract: When producers are uncertain or have imperfect information about the profitability of adopting new technology, their adoption behavior depends on the endowment of human capital and the investment in adoption information. This study analyzes the role of education, experience, and information acquisition in the decision to be an early adopter. The findings support the hypothesis that adoption decision-making is a human capital intensive activity. The econometric evidence presented suggests that education and information reduce adoption costs and uncertainty, and thereby raise the probability of early adoption. Adoption behavior is also shown to vary significantly across firm size.

The relationship between growth, profitability, and firm value

Abstract: 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 Performance of Small Firms: Profits, Jobs and Failures

Abstract: Investigates the factors influencing job creation in small firms, firm survival and potential predictors of firm success. One key purpose of this study is to better understand market failures which might warrant public policy intervention. Part one conducts an analysis on a database of 636 manufacturing firms in the United Kingdom to determine the mechanisms of small firm profits and job creation; and part two assesses the use of financial ratios as a predictor of small firm survival. The selection of the companies is detailed, as are the companies' general characteristics. In particular, the authors have endeavored to develop a database that includes short-lived or failed firms. A subset of this database is reviewed to determine the typical ownership and management structure, accounting practices, and financing sources of small firms. Small firms tend to have family boards of directors and few non-director shareholders. Accounting practices tend to be unsophisticated and capital comes largely through borrowing. A summary of existing empirical research on the relation of firm size to growth and profitability is presented and found wanting because those earlier studies focused on relatively large firms. Accordingly, the authors apply the tests from earlier research to their database and document the findings and their differences from earlier conclusions. In particular, for small firms profitability increases with increasing size whereas for large firms profitability decreases with increasing size. Age of a company also has a significant effect on small firm performance but little impact on large firm performance. The role of profitability to job creation is examined to determine optimal forms of government assistance and delivery methods. Financial ratios of successful and failed small firms are subjected to univariate analysis, multiple discriminant analysis, and probit, logit, and factor analysis to determine the adequacy of financial ratios as a predictor of failure. Lastly, the use of qualitative variable to supplement financial ratios in failure prediction is examined and found to be useful. (CAR)

Modelling the Effectiveness and Profitability of Trade Promotions

Abstract: Trade promotions have become an increasingly important element of the marketing mix. Yet, there is very little research describing how to measure the profitability and effectiveness of trade promotions. This paper describes how retailers behave when trade promotions are offered. Then, a model is developed to capture the two key components of the process: the consumer and the retailer. An example is given showing how to apply the model to actual manufacturer and retail sales data. Then estimates of the profitability for different items in a product category are calculated. Many research questions are raised in this paper which can serve as future directions for research. Why are trade promotions generally unprofitable? How can scanner data improve the estimates given? How do different types of trade promotions affect the retailer and ultimately the consumer? Which brands and items should be trade promoted?

An Empirical Test of an Asymmetric Information Model of Strikes

Abstract: Recent developments in the theory of strategic bargaining demonstrate how informational asymmetries can lead to prolonged and costly bargaining. These models can be applied to contract negotiations, yielding an economic theory of strikes. To date, however, few empirical tests of these models have been carried out. In this paper, a set of predictions concerning the incidence and unconditional duration of strikes is derived from a simple bargaining model in which the union is uncertain about the firm's future profitability. These predictions are then tested on a micro data set of major U.S. contract negotiations that took place from 1973 to 1977.

Efficiency and Profitability in Exotic Bets

Abstract: The efficiency and profitability of exotic racetrack bets such as exactas and daily doubles are examined. Efficiency is understood to mean that above average returns cannot be made in the long run once risk is appropriately controlled for. The markets in question are found not to be efficient; the inefficiencies, however, are insufficient to permit simple strategies to show a consistent profit. Some evidence of "smart money" exists in that holders of inside information may bet on exactas rather than equivalent standard bets in order to avoid signaling their actions to the betting public. Copyright 1987 by The Review of Economic Studies Limited.

Performance evaluation of state-owned enterprises in theory and practice

Abstract: This study explores the goal orientation of state-owned enterprises SOEs with a view to develop a behavioral theory of SOEs. It is set in India, where as in many other countries the government expects SOEs to promote the "public interest" rather than maximize profits. The research design consisted in searching for patterns in the subjective evaluations of a set of Indian SOEs by critical environmental actors senior bureaucrats and influential journalists. The study attempted to get at each respondent's "espoused theory" for performance evaluation as well as his or her "theory-in-use," and compared both with official goals as well as the prescriptions of welfare economists. Five models of performance evaluation, varying in criteria and weighting schemes, were considered. The results showed-with surprising consistency-that commercial profitability was the most important criterion that explained bureaucrats' subjective evaluations. Lack of comprehensive information seemed to accentuate their reliance on profitability-but not by very much. For a minority of bureaucrats Type 1, the more important explanation seemed to be their "incorrect" belief that SOEs could be judged like private firms, official policy notwithstanding. For the majority Type 2, who espoused views consistent with official policy, the explanation seemed to be conceptual confusion or double standards. Both types also behaved as if they would like SOEs to maximize profitability rather than just break even or earn a reasonable return. Some of these findings were true for responding journalists as well. Given these results, managers of Indian SOEs can be expected to seek profits not only to reduce financial dependence on government but also to gain a measure of external legitimacy. Recognizing the importance of profitability as a criterion-in-use, they can be expected to propose strategies that would increase their firm's profitability and resist those that would reduce it, regardless of official goals. Where managers are free to act independently, profitability may prevail as the dominant decision criterion, but where they are not, the outcome may depend on more complex factors. More generally, the profit motive in SOEs may be as strong or stronger than it appeared to be in India in countries with a less sophisticated administrative systems or personnel; b an official ideology more to the right than in "socialist" India; and c a higher proportion of mixed enterprises. The paper concludes with the implications of these findings for the design of performance evaluation systems at the government-SOE interface.

War in International Society: A Study in International Sociology

Abstract: Introduction. 1 . The Study of War. 2. The Conflicts. 3. Issues. 4. Motives. 5. Decisions. 6. Profitability. 7. Procedures. 8. Beliefs. 9. Conclusions. Appendixes. Index.

Does hospital diversification improve financial outcomes

Abstract: Service or product diversification is a popular recommendation made to hospitals to increase profitability and reduce financial risk as they face a more hostile environment. This paper presents results from an empirical study of these claims. Using data from all California nonprofit hospitals, the study finds that diversification, regardless of whether it is related or unrelated to preexisting services, is not associated with either increased profitability or reduced financial risk. However, other variables that do have these effects are identified in the research. Future research should evaluate the effect of both the size of and the length of time since the initial diversifying investment on financial variables.

Anticipated Tax Changes and the Timing of Investment

Abstract: This paper analyzes the short-run and long-run effects of corporate tax changes over the last three decades and the likely consequences of proposed future tax changes. Consideration of short-run effects of tax reform on investment and market value requires a careful analysis of three elements of behavior that are normally omitted from long run analyses: the state of investor expectations, the time lags involved in putting new capital in place, and the tax law's distinctions between new and old capital. The model described in this paper considers investment in equipment and investment in plant separately, and does so under different specifications of investor expectations. Our results for the period 1954-1985 suggest that investors did take account of fluctuations in profitability, real interest rates, and the tax code in making their investment plans. We examine the consequences of the nonindexation of depreciation benefits as well as the introduction of the investment tax credit and the Accelerated Cost Recovery System by simulating the corporate sector's performance in the absence of these features. In addition, we analyze the effects of changing the tax code in 1986 along the lines proposed in the Bradley-Gephardt "Fair Tax" plan, the Treasury II plan, and the Rostenkowski plan, H.R. 3838. The simulation results suggest that all three plans would reduce fixed investment in the short run, with the reduction coming primarily in equipment. At the same time, the simulations predict large wind-falls for existing capital assets under all three reform proposals.(This abstract was borrowed from another version of this item.)

The impact of labour

Abstract: The attainment and improvement of profitability, for the intermodal transport industry, requires the introduction of new technologies, a process hampered by competition between the interests of management and labor. The industry must therefore concentrate on achieving a more cooperative approach through better labor relations.

Financial services: increasing your marketing productivity and profitability

Abstract: A comparative study was made by Coopers and Lybrand on the importance of various management areas. Of the executives surveyed in the early 1980's, only 29 percent perceived marketing as being most important. In 1985, 64 percent of the respondents felt that the most important area of the firm was marketing.

The Effects of Tax Rules on Nonresidential Fixed Investment: Some Preliminary Evidence from the 1980s

Abstract: The evidence presented in this study confirms that tax-induced changes in the profitability of investment have had a powerful effect on the share of GNP devoted to nonresidential fixed investment. More specifically, we have reestimated two models of aggregate investment initially presented in Feldstein, "Inflation, Tax Rules and Investment: Some Econometric Evidence,"(Econometrica, 1982). The present study extends the previous analysis byusing revised national income accounts, by improving the estimation of the effective tax rate and the profitability of new investments, and by extending the sample to include the years 1978 through 1984. Despite these changes, the new statistical estimates are remarkably close to the previous results. The statistical estimates are also very robust with respect to sample period, estimation method, and the presence of other variables.The first model relates the investment-GNP ratio to the real net-of-tax rate of return received by the providers of debt and equity capital to the nonfinancial corporate sector and to the rate of capacity utilization. Our estimates imply that each percentage point increase in the real net return raises the investment-GNP ratio by 0.4 percentage points. A one percent age point increase in the net return is equivalent to a ten percentage point reduction in the overall effective tax rate. Since the net nonresidential fixed investment averaged 3 percent of GNP during the past three decades, a ten percentage point tax reduction induces a 13 percent rise in the investment-GNP ratio.Our second model relates the investment-GNP ratio to the difference between the maximum potential net return that firms can support by investing in a "standard investment project" and the net cost of debt and equity capital. The statistical estimates imply that each percentage point change in this measure of the rate of return over cost raises the investment-GNP ratio by 0.3 percentage points or 10 percent of its three-decade average.The estimates imply that the 1985 tax bill passed by the House of Representatives would reduce the investment-GNP ratio by between 10 percentand 15 percent of its average value, depending on the model used to make the calculation. Such reductions would represent between one-half and three-fourths of the rise in the investment-GNP ratio since the 1981 investment incentives were adopted.

Exporting for success as a small canadian manufacturer

Abstract: This paper examines the factors associated with the export performance of a 38-firm sample of small Canadian manufacturers. Two measures of export performance, intensity and relative profitability, are employed in this study. The findings suggest that on-going commitment is important for both export intensity and profitability. This commitment can be reflected in both the human resources devoted to exporting and the management of the strategy components. Smallfirms can also enhance their profitability through careful product-market selection. With the proper focus and commitment, small firms can profit considerably from exports.

Mueller's Profits in the Long Run

Abstract: Mueller uses a measure of persistent, or long-run, interfirm differences in profitability, obtained by estimating a separate time-series model for each firm, to reexamine this question. His results are quite different from those obtained from cross sections of annual profit rates, and the differences shed new light on old issues. Moreover, in describing and analyzing the separate profit series, and in comparing the cross sectional with the time-averaged results, Mueller focuses attention on the dynamics of the profit process and the relative importance of the different factors that affect it. As a result, the careful reader will come away from this book with a set of questions that just might lie at the heart of the debate about profitability movements among manufacturing firms and that ought, at least in part, to be analyzable with currently available tools and data. I have divided my review into four sections. First, I outline Mueller's model and consider its relationship to other recent work on profitability differences. Next, I summarize Mueller's empirical results (both the more descriptive time-series results, and the estimates of his model), and then I provide a brief comparison with the results Schmalensee (1985) and Ravenscraft (1983) obtain on the determinants of cross sectional profitability differences. Any ultimate reconciliation of the different findings, and any more detailed analysis of their implications, will require a deeper understanding of the factors causing profitability movements over time. The last section of this review considers the dynamic issues on which Mueller, and his results, focus attention and discusses the models that seem appropriate for analyzing them. It is clear that further empirical work on these issues must make some allowance for mergers and acquisitions on the one hand, and bankruptcies and liquidations on the other. The review concludes by explaining why this is so and by considering how it might be done.

When Does Market‐Share Matter?

Abstract: One of the tenets of the conventional wisdom of the strategic management literature is that if a business succeeds in increasing its market‐share it will usually enjoy an improvement in its profitability. It is not simply that it serves as one of a battery of measures of relative performance, nor that, ceteris paribus, increases in the volume of sales must be linked to increases in the total amount of profits earned, but that increases in market share will directly cause increases in profitability, that is profits deflated to take into account the level of output. As might be expected, the strength of feeling that is displayed about the virtues of market‐share as a strategic tool varies enormously among opinion leaders. Those from the influential Boston Consulting Group (1970) are almost messianic in their exhortations to businesses to aim single mindedly for increased market‐share in order to move down their experience curves. Others, most notably from the Strategic Planning Institute, through its Profit Impact of Market Strategies Programme (PIMS), e.g. Schloeffer, et al., (1974), Buzzell, et al., (1975) and Gale (1972), imply the importance of market‐share by the emphasis they place upon its influence in their reporting of the results of regressing return‐on‐investment in a model which contains over thirty other variables.

A Mission Approach to Customer Profitability Analysis

Abstract: Customer Profitability Analysis (CPA) is a technique for assessing the real profitability of customers and markets and is currently the subject of growing interest. The Marketing Accounting Research Centre at the Cranfield School of Management recently conducted a study involving four diverse companies, the purpose of which was to review the concepts and approaches that could be used to implement a system of customer profitability accounting.

Productivity Analysis: A Micro-to-Macro Perspective

Abstract: This paper raises several issues concerning productivity analysis. An attempt is made to demonstrate the usefulness of a micro-based approach to productivity analysis which challenges some basic assumptions of conventional analyses based on aggregate production functions. With the help of a micro- (firm-)based macro simulation model it is shown if there are important differences among firms in economic competence, here represented by efficiency and investment behavior, the relationships between investment, productivity, and economic growth are much more complex and unpredictable than commonly assumed . The rate of technological progress as measured by the rate of change in best-practice technology seems to be less important than the elimination of inefficiency by closure of firms and/or by firms moving closer to their respective production frontiers. It is also shown that the conditions which determine firm borrowing for investment (involving their interpretation of past profitability and expectations based on current capacity utilization) are more important for productivity and economic growth than the total amount invested. In other words, it matters less how much is invested than who does the investing, and under what incentives. The implication for productivity analysis is that unless diversity among economic units is taken into account, the results are likely to continue to be inconclusive. What is needed is much more of an integration of micro and macro theory than has been accomplished thus far. In particular, economic competence must be included. The paper also tries to put productivity in the proper perspective, not as an object in and of itself but rather as a partial measure, at best, of economic performance at any level within the economy.

The distribution of financial results between farmers during a period of agricultural setbacks: grain farmers in the western transvaal, 1981/82

Abstract: The first half of the 1980s was a period of economic setbacks. Ratio numbers were used to measure financial success in the Western Transvaal. Median profitability was low, but solubility favourable. Excessive use of short-term debt capital was encountered. The median ratio between gross revenue and total costs was unfavourable; over-expenditure on fertilisers, fuel and repairs in particular, reduced profitability. Large variances were encountered in most ratios and distributions were not normal. Those whose performances were weaker in terms of profitability and liquidity incurred larger costs relative to revenue and also invested more.