Showing papers on "Profitability index published in 2009"
TL;DR: In this article, the authors developed a framework for analyzing the profitability of reuse activities and showed how the management of product returns influences operational requirements, and how operational issues are strongly affected by the approach used to manage product returns.
Abstract: Firms are often encouraged to offer environmentally friendly products as a demonstration of corporate citizenship. However, this may prove to be an unrealistic expectation since a rational firm will only engage in profitable ventures; those that increase shareholder wealth. We develop a framework for analyzing the profitability of reuse activities and show how the management of product returns influences operational requirements. We show that the acquisition of used products may be used as the control lever for the management and profitability of reuse activities. These activities, termed product acquisition management, affect several important business decisions. First, if a firm is to pursue reuse activities, these reuse activities must be value-creating. Second, if a firm is to compete by offering remanufactured products, then we show how product returns management influences the overall profitability of such activities via a trial and error EVA approach. Third, we show how operational issues are strongly affected by the approach used to manage product returns. There is a need for future research specifying the mathematical relationship between acquisition price and the nominal quality of the returned product.
667 citations
TL;DR: For example, the authors analyzes empirically what explains the low profitability of Chinese banks for the period 1997-2004 and finds that better capitalized banks tend to be more profitable.
Abstract: This paper analyzes empirically what explains the low profitability of Chinese banks for the period 1997-2004. We find that better capitalized banks tend to be more profitable. The same is true for banks with a relatively larger share of deposits and for more X-efficient banks. In addition, a less concentrated banking system increases bank profitability, which basically reflects that the four state-owned commercial banks - China’s largest banks - have been the main drag for system’s profitability. We find the same negative influence for China’s development banks (so called Policy Banks), which are fully state-owned. Instead, more market oriented banks, such as joint-stock commercial banks, tend to be more profitable, which again points to the influence of government intervention in explaining bank performance in China. These findings should not come as a surprise for a banking system which has long been functioning as a mechanism for transferring huge savings to meet public policy goals.
480 citations
TL;DR: This paper used a sample of 389 banks in 41 SSA countries to study the determinants of bank profitability and found that higher returns on assets are associated with larger bank size, activity diversification, and private ownership.
Abstract: Bank profits are high in Sub-Saharan Africa (SSA) compared to other regions. This paper uses a sample of 389 banks in 41 SSA countries to study the determinants of bank profitability. We find that apart from credit risk, higher returns on assets are associated with larger bank size, activity diversification, and private ownership. Bank returns are affected by macroeconomic variables, suggesting that macroeconomic policies that promote low inflation and stable output growth does boost credit expansion. The results also indicate moderate persistence in profitability. Causation in the Granger sense from returns on assets to capital occurs with a considerable lag, implying that high returns are not immediately retained in the form of equity increases. Thus, the paper gives some support to a policy of imposing higher capital requirements in the region in order to strengthen financial stability.
445 citations
TL;DR: The authors argue that developing economies are as or more likely to be investment- than savings-constrained and that the effect of foreign finance is often to aggravate this investment constraint by appreciating the real exchange rate and reducing profitability and investment opportunities in the traded goods sector, which have adverse long-run growth consequences.
Abstract: The stylized fact that there is no correlation between long-run economic growth and financial globalization has spawned a recent literature that purports to provide newer evidence and arguments in favor of financial globalization. We review this literature and find it unconvincing. The underlying assumptions in this literature are that developing countries are savings-constrained; that access to foreign finance alleviates this to boost investment and long-run growth; and that insofar as there are problems with financial globalization, these can be remedied through deep institutional reforms. In contrast, we argue that developing economies are as or more likely to be investment- than savings-constrained and that the effect of foreign finance is often to aggravate this investment constraint by appreciating the real exchange rate and reducing profitability and investment opportunities in the traded goods sector, which have adverse long-run growth consequences. It is time for a new paradigm on financial globalization, and one that recognizes that more is not necessarily better. Depending on context and country, the appropriate role of policy will be as often to stem the tide of capital inflows as to encourage them. Policymakers who view their challenges exclusively from the latter perspective risk getting it badly wrong.
444 citations
TL;DR: For example, the authors analyzes empirically what explains the low profitability of Chinese banks for the period 1997-2004 and finds that better capitalized banks tend to be more profitable.
Abstract: This paper analyzes empirically what explains the low profitability of Chinese banks for the period 1997–2004. We find that better capitalized banks tend to be more profitable. The same is true for banks with a relatively larger share of deposits and for more X-efficient banks. In addition, a less concentrated banking system increases bank profitability, which basically reflects that the four state-owned commercial banks – China’s largest banks – have been the main drag for system’s profitability. We find the same negative influence for China’s development banks (so-called Policy Banks), which are fully state-owned. Instead, more market-oriented banks, such as joint-stock commercial banks, tend to be more profitable, which again points to the influence of government intervention in explaining bank performance in China. These findings should not come as a surprise for a banking system which has long been functioning as a mechanism for transferring huge savings to meet public policy goals.
404 citations
TL;DR: In this article, a set of equations for net interest income, non-interest income, operating costs, provisions, and profit before taxes, for banks in the main industrialized countries and evaluates the effects on banking profitability of shocks to both macroeconomic and financial factors.
392 citations
TL;DR: In this paper, the authors proposed that promarket reforms positively affect firms' profitability in developing countries because the accompanying improvements in external monitoring decrease firms' agency costs, and they also proposed a new model to evaluate the impact of external monitoring.
Abstract: This study proposes that promarket reforms positively affect firms' profitability in developing countries because the accompanying improvements in external monitoring decrease firms' agency costs. ...
355 citations
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TL;DR: This article used a sample of 389 banks in 41 SSA countries to study the determinants of bank profitability and found that higher returns on assets are associated with larger bank size, activity diversification, and private ownership.
Abstract: Bank profits are high in Sub-Saharan Africa (SSA) compared to other regions. This paper uses a sample of 389 banks in 41 SSA countries to study the determinants of bank profitability. We find that apart from credit risk, higher returns on assets are associated with larger bank size, activity diversification, and private ownership. Bank returns are affected by macroeconomic variables, suggesting that macroeconomic policies that promote low inflation and stable output growth does boost credit expansion. The results also indicate moderate persistence in profitability. Causation in the Granger sense from returns on assets to capital occurs with a considerable lag, implying that high returns are not immediately retained in the form of equity increases. Thus, the paper gives some support to a policy of imposing higher capital requirements in the region in order to strengthen financial stability.
332 citations
TL;DR: In this paper, the authors examined the relationship between CSR and firm value and profitability for hotels and casinos, and found that hotel companies can confidently and strategically increase CSR investment to enhance both short-term and long-term performance.
323 citations
01 Jan 2009
315 citations
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TL;DR: In this paper, the authors examined the implications of supervision on the institutions' profitability and their outreach to small-scale borrowers and women, and found that supervision is associated with substantially larger average loan sizes and less lending to women than in ordinary least squares regressions, although it is not significantly associated with profitability.
Abstract: Regulation allows microfinance institutions to evolve more fully into banks, particularly for institutions aiming to take deposits. But there are potential trade-offs. Complying with regulation and supervision can be costly. The authors examine the implications for the institutions' profitability and their outreach to small-scale borrowers and women. The tests draw on a new database that combines high-quality financial data on 245 of the world's largest microfinance institutions with newly-constructed data on their prudential supervision. Ordinary least squares regressions show that supervision is negatively associated with profitability. Controlling for the non-random assignment of supervision via treatment effects and instrumental variables regressions, the analysis finds that supervision is associated with substantially larger average loan sizes and less lending to women than in ordinary least squares regressions, although it is not significantly associated with profitability. The pattern is consistent with the notion that profit-oriented microfinance institutions absorb the cost of supervision by curtailing outreach to market segments that tend to be more costly per dollar lent. By contrast, microfinance institutions that rely on non-commercial sources of funding (for example, donations), and thus are less profit-oriented, do not adjust loan sizes or lend less to women when supervised, but their profitability is significantly reduced.
TL;DR: Li et al. as mentioned in this paper developed and tested an interactive perspective that highlights the moderating effects of managerial ties on competitive position-performance relationships and found that though both differentiation and low-cost positions foster foreign firm profitability, the benefit of a differentiation position is conditional on political and business ties in different directions.
Abstract: Despite the prominence of the competitive strategy perspective, it remains unclear whether foreign firms entering China can still adopt a differentiation or low-cost position to achieve superior performance, given the unique market and institutional environments in China. Alternatively, should foreign firms follow conventional wisdom and actively build managerial ties with government officials and business community to enhance their performance? This study develops and tests an interactive perspective that highlights the moderating effects of managerial ties on competitive position–performance relationships. The results indicate that though both differentiation and low-cost positions foster foreign firm profitability, the benefit of a differentiation position is conditional on political and business ties in different directions: political ties impede and business ties strengthen the positive effect of a differentiation position on foreign firms’ profitability. Moreover, foreign firms benefit from their use of business ties, but their profitability suffers when they rely increasingly on the heavy use of political ties.
TL;DR: In this paper, the determinants of firm performance and the role that firm size plays in profitability were examined and a fixed-effects dynamic panel data model for over 7,000 US publicly-held firms during the period 1987-2006 was presented.
Abstract: This paper reexamines the determinants of firm performance and, in particular, the role that firm size plays in profitability. A fixed‐effects dynamic panel data model for over 7,000 US publicly‐held firms during the period 1987–2006 provides evidence that profit rates are positively correlated with firm size in a non‐linear manner, holding an array of firm‐ and industry‐specific characteristics constant. In addition, industry‐specific fixed effects play a negligible role in the presence of firm‐specific fixed effects.
TL;DR: In this article, the authors argue that growth is often not a sign of sound development and hypothesize that firms which grow without first securing high levels of profitability tend to be less successful in subsequent periods compared to firms that first secure high profitability at low growth.
TL;DR: The authors investigated the relation between perceived competition and voluntary disclosure in the absence of capital market incentives by examining private UK companies, which have the option to withhold sales and costs of sales information from their publicly-filed accounts.
TL;DR: The authors examined the determinants of the profitability of the Chinese banking sector during the post-reform period of 2000-2005 and found that liquidity, credit risk, and capitalization have positive impacts on the state owned commercial banks (SOCBs) profitability, while the impact of cost is negative.
Abstract: This paper seeks to examine the determinants of the profitability of the Chinese banking sector during the post-reform period of 2000–2005. The empirical findings from this study suggest that all the determinants variables have statistically significant impact on China banks profitability. However, the impacts are not uniform across bank types. We find that liquidity, credit risk, and capitalization have positive impacts on the state owned commercial banks (SOCBs) profitability, while the impact of cost is negative. Similar to their SOCB counterparts, we find that joint stock commercial banks (JSCB) with higher credit risk tend to be more profitable, while higher cost results in a lower JSCB profitability levels. During the period under study, the empirical findings suggest that size and cost results in a lower city commercial banks (CITY) profitability, while the more diversified and relatively better capitalized CITY tend to exhibit higher profitability levels. The impact of economic growth is positive, while growth in money supply is negatively related to the SOCB and CITY profitability levels.
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TL;DR: In this article, the effect of corruption in the host country's corruption level on foreign direct investment (FDI) inflows has been investigated and no significant relationship has been found.
Abstract: The surge in foreign direct investment (FDI) flows during the 1990s has motivated a host of recent studies into their determinants. Recently, the level of corruption in the host country has been introduced as one factor among the determinants of FDI location. From a theoretical viewpoint, corruption—that is, paying bribes to corrupt government bureaucrats to get “favors” such as permits, investment licenses, tax assessments, and police protection—is generally viewed as an additional cost of doing business or a tax on profits. As a result, corruption can be expected to decrease the expected profitability of investment projects. Investors will therefore take the level of corruption in a host country into account in making decisions to invest abroad. The empirical literature on the effects of the host country’s corruption level on FDI inflows, however, has not found the commonly expected effects. Some empirical studies provide evidence of a negative link between corruption and FDI inflows, while others fail to find any significant relationship. Most existing studies use a cross-sectional rather than a panel data analysis to examine the effects of a complex phenomenon. Such a method cannot control for the unobserved country-specific effects
TL;DR: In this article, the authors investigated the efficiency of intellectual capital and its performance in Malaysian financial sectors and found that the banking sector relied more on intellectual capital followed by insurance companies and Brokerage firms.
Abstract: It is no doubt that successful companies tend to be those that continually innovate, relying on new technologies and emphasize on skills and knowledge of their employees rather than assets such as plants or machinery. Knowledge being the new engine of corporate development has become one of the great cliches of recent years. Value can be generated by intangibles, which are not always reflected in financial statements. Forward-looking companies have realized that these are an integral part of fully understanding the performance of their business. This study therefore tries to investigate the efficiency of intellectual capital and its performance in Malaysian financial sectors. The results were based on the data taken from 18 companies under financial sector for the year 2007. It was found that the banking sector relied more on intellectual capital followed by insurance companies and Brokerage firms. It was also found that intellectual capital has significant and positive relationships with company’s performance measured by profitability and Return on Assets (ROA).
TL;DR: In this paper, the authors examined the implications of regulation and supervision on micro finance institutions' profitability and their outreach to small-scale borrowers and women, and found that supervision is associated with substantially larger average loan sizes and less lending to women than in ordinary least squares regressions, although it is not significantly associated with profitability.
TL;DR: In this article, the authors investigated the effects of bank-specific and macroeconomic determinants of bank profitability, using an empirical framework that incorporates the traditional Structure-Conduct- Performance (SCP) hypothesis.
Abstract: This paper investigates the effects of bank-specific and macroeconomic determinants of bank profitability, using an empirical framework that incorporates the traditional Structure-Conduct- Performance (SCP) hypothesis. A panel data approach has been adopted and effectively applied to six Greek banks. The evidence generated suggests that for any consistent or systematic size the profitability relationship is relatively weak. Most of the bank-specific determinants were found to significantly affect bank profitability. A more ambiguous picture emerged when the macroeconomic factors were considered.
TL;DR: In this article, the performance of a technology against the money or effort invested in it most often yields an S-shaped curve: slow initial improvement, then accelerated improvement, and then diminishing improvement.
TL;DR: A survey of the use of value-of-information in the oil and gas industry can be found in this article, where the authors provide an overview of how the analysis was carried out and for which types of decisions VOI analysis has been performed.
Abstract: This paper (SPE 110378) was accepted for presentation at the SPE Annual Technical Conference and Exhibition, Anaheim, California, USA, 11–14 November 2007, and revised for publication. Original manuscript received for review 10 August 2007. Revised manuscript received for review 10 March 2009. Paper peer approved 30 March 2009. Summary An important task that petroleum engineers and geoscientists undertake is to produce decision-relevant information. Some of the most important decisions we make concern what type and what quality of information to produce. When decisions are fraught with geologic and market uncertainties, this information gathering may such forms as seismic surveys, core and well test analyses, reservoir simulations, market analyses, and price forecasts—which the industry spends billions of US dollars each year. Yet, considerably less time and resources are expended on assessing the profitability or value of this information. Why is that? This paper addresses how to make value-of-information (VOI) analysis more accessible and useful by discussing its past, present, and future. On the basis of a survey of SPE publications, we provide an overview of the use of VOI in the oil and gas industry, focusing on how the analysis was carried out and for which types of decisions VOI analysis has been performed. We highlight areas in which VOI methods have been used successfully and identify important challenges. We then identify and discuss the possible causes for the limited use of VOI methods and suggest ways to increase the use of this powerful analysis tool.
TL;DR: In this article, the authors analyzed retail investors' stock trades for potential learning behavior and found evidence that individual investors learn from their trading experience, and they consequently adjust their behavior and thus effectively improve their investment performance.
TL;DR: In this paper, the determinants of profitability for a sample of Greek non-financial firms listed in the Athens Stock Exchange for the period 1995-2003 were examined, and they found that the EMU participation and the adoption of the euro were negatively related to firm profitability.
Abstract: Purpose – The purpose of this paper is to examine the determinants of profitability for a sample of Greek non‐financial firms listed in the Athens Stock Exchange for the period 1995‐2003. This is a very important period for the Greek economy on the way to European monetary union (EMU).Design/methodology/approach – The methodologies employed include panel data estimation techniques. This research attempts to exploit the determinants of firm profitability of non‐financial Greek firms listed in Athens Exchange utilizing firm‐specific publicly available accounting variables using panel data estimation techniques rather than cross‐sectional analysis.Findings – According to the findings, firm profitability was positively affected by size, sales growth and investment and negatively by leverage and current assets. Additionally, we found that the EMU participation and the adoption of the euro were negatively related to firm profitability.Practical implications – Taking into account the fact that the Greek economy ...
TL;DR: In this article, the authors examined the performance of 37 Bangladeshi commercial banks between 1997 and 2004 and found that bank specific characteristics, in particular loans intensity, credit risk, and cost have positive and significant impacts on bank performance, while non-interest income exhibits negative relationship with bank profitability.
Abstract: This study seeks to examine the performance of 37 Bangladeshi commercial banks between 1997 and 2004. The empirical findings of this study suggest that bank specific characteristics, in particular loans intensity, credit risk, and cost have positive and significant impacts on bank performance, while non‐interest income exhibits negative relationship with bank profitability. During the period under study the results suggest that the impact of size is not uniform across the various measures employed. The empirical findings suggest that size has a negative impact on return on average equity (ROAE), while the opposite is true for return on average assets (ROAA) and net interest margins (NIM). As for the impact of macroeconomic indicators, we conclude that the variables have no significant impact on bank profitability, except for inflation which has a negative relationship with Bangladeshi banks profitability.
Journal Article•
TL;DR: In this paper, the authors examined the relationship between working capital management and firm profitability and found that reducing cash conversion period results to profitability increase, thus, in purpose to create shareholder value, firm manager should concern on shorten of cash conversion cycle till optimal level is achieved.
Abstract: Working capital always being disregard in financial decision making since it involve investment and financing in short term period. However, it is an important component in firm financial management decision. An optimal working capital management is expected to contribute positively to the creation of firm value. To reach optimal working capital management firm manager should control the trade off between profitability and liquidity accurately. The intention of this study is to examine the relationship between working capital management and firm profitability. Cash conversion cycle is used as measure of working capital management. This study is used panel data of 1628 firm-year for the period of 1996-2006 that consist of six different economic sectors which are listed in Bursa Malaysia. The coefficient results of Pooled OLS regression analysis provide a strong negative significant relationship between cash conversion cycle and firm profitability. This reveals that reducing cash conversion period results to profitability increase. Thus, in purpose to create shareholder value, firm manager should concern on shorten of cash conversion cycle till optimal level is achieved.
TL;DR: This paper analyzed the relationship between firm profitability and wages using a linked employer-employee dataset and found that individual wages are positively related to firm-specific quasi-rents in the non-union sector and under firm specific contracts.
Abstract: Using a linked employer-employee dataset, this paper analyses the relationship between firm profitability and wages. Particular emphasis is given to the question of whether the sensitivity of wages to firm-specific rents varies with collective bargaining coverage. To address this issue, we distinguish sector- and firm-specific wage agreements and wage determination without any bargaining coverage. Our findings indicate that individual wages are positively related to firm-specific quasi-rents in the non-union sector and under firm-specific contracts. Industry-wide wage contracts, however, are associated with a significantly lower responsiveness of wages to firm-level profitability.
TL;DR: In this article, the extent to which wind energy can replace fossil capacities based on wind injection and demand data for 2006 through June 2008 was analyzed and the potential savings due to wind energy was also assessed.
TL;DR: In this article, the effects of concentration, market power, bank size, and operational efficiency on bank profitability were investigated and it was found that the relationship between concentration and profitability acts in a generalised structural way and the higher profits arising from concentration are at the expense of the rest of the economy.
Abstract: Bank profitability in the USA was extremely high in the pre-crisis period, yet this did not prevent the current crisis. It has become clear that these profits were on shaky grounds and also that bank profits were not used to buttress banks’ capital bases. This paper analyses the effects of structure on profitability from 1994 to 2005. Banklevel panel data are used to test the effects of concentration, market power, bank size and operational efficiency on profitability. Efficiency is not found to be a strong determinant of profitability, suggesting that banks’ high profits during this period were not ‘earned’ through efficient performance. Robust evidence is found that concentration increases bank profitability. This holds even when the largest banks are excluded from the sample, suggesting that the relationship between concentration and profitability acts in a generalised structural way and that the higher profits arising from concentration are at the expense of the rest of the economy. The analysis points to various policy implications relevant to the current crisis, in particular in terms of the legitimacy of expectations of the restoration of pre-crisis profit rates and the need for much stronger regulation of the banking sector, especially in terms of the structure of the sector, pricing behaviour and use of profits.