Showing papers on "Profitability index published in 2012"
TL;DR: The authors empirically examined how capital affects a bank's performance (survival and market share), and how this effect varies across banking crises, market crises, and normal times that occurred in the U.S over the past quarter century.
Abstract: This paper empirically examines how capital affects a bank’s performance (survival and market share), and how this effect varies across banking crises, market crises, and normal times that occurred in the U.S. over the past quarter century. We have two main results. First, capital helps small banks to increase their probability of survival and market share at all times (during banking crises, market crises, and normal times). Second, capital enhances the performance of medium and large banks primarily during banking crises. Additional tests explore channels through which capital generates the documented effects. Numerous robustness checks and additional tests are performed.
1,080 citations
Posted Content•
TL;DR: The empirical evidence, derived using archival data from 1998 to 2003 for more than 400 global firms, suggests that IT has a positive impact on profitability, and the effect of IT investments on sales and profitability is higher than that of other discretionary investments, such as advertising and R&D.
Abstract: Do information technology (IT) investments improve firm profitability? If so, is this effect because such investments help improve sales, or is it because they help reduce overall operating expenses? How does the effect of IT on profitability compare with that of advertising and research and development (R&D)? These are important questions because investments in IT constitute a large part of firms’ discretionary expenditures, and managers need to understand the likely impacts and mechanisms to justify and realize value from their IT and related resource allocation processes. The empirical evidence in this paper, derived using archival data from 1998 to 2003 for more than 400 global firms, suggests that IT has a positive impact on profitability. Importantly, the effect of IT investments on sales and profitability is higher than that of other discretionary investments, such as advertising and R&D. A significant portion of IT’s impact on firm profitability is accounted for by IT-enabled revenue growth, but there is no evidence for the effect of IT on profitability through operating cost reduction. Taken together, these findings suggest that firms have had greater success in achieving higher profitability through IT-enabled revenue growth than through IT-enabled cost reduction. They also provide important implications for managers to make allocations among discretionary expenditures such as IT, advertising, and R&D. With regard to IT expenditures, the results imply that firms should accord higher priority to IT projects that have revenue growth potential over those that focus mainly on cost savings.
402 citations
TL;DR: By considering the flows associated with different entities within the ecosystem, recent Operations Research/Management Science research developments are classified and summarized and several gaps for future research are identified.
392 citations
TL;DR: In this paper, the effect of IT investments on sales and profitability is compared with that of other discretionary investments, such as advertising and R&D. The empirical evidence derived using archival data from 1998 to 2003 for more than 400 global firms suggests that IT has a positive impact on profitability.
Abstract: Do information technology investments improve firm profitability? If so, is this effect because such investments help improve sales, or is it because they help reduce overall operating expenses? How does the effect of IT on profitability compare with that of advertising and of research and development? These are important questions because investments in IT constitute a large part of firms' discretionary expenditures, and managers need to understand the likely impacts and mechanisms to justify and realize value from their IT and related resource allocation processes. The empirical evidence in this paper, derived using archival data from 1998 to 2003 for more than 400 global firms, suggests that IT has a positive impact on profitability. Importantly, the effect of IT investments on sales and profitability is higher than that of other discretionary investments, such as advertising and R&D. A significant portion of the impact of IT on firm profitability is accounted for by IT-enabled revenue growth, but there is no evidence for the effect of IT on profitability through operating cost reduction. Taken together, these findings suggest that firms have had greater success in achieving higher profitability through IT-enabled revenue growth than through IT-enabled cost reduction. They also provide important implications for managers to make allocations among discretionary expenditures such as IT, advertising, and R&D. With regard to IT expenditures, the results imply that firms should accord higher priority to IT projects that have revenue growth potential over those that focus mainly on cost savings.
341 citations
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TL;DR: This paper developed an analytically-tractable model integrating the dynamic theory of investment with dynamic optimal incentive contracting, thereby endogenizing financing constraints, which generates a history-dependent wedge between marginal and average q, and both vary over time as good (bad) performance relaxes (tightens) financing constraints.
Abstract: We develop an analytically-tractable model integrating the dynamic theory of investment with dynamic optimal incentive contracting, thereby endogenizing financing constraints. Incentive contracting generates a history-dependent wedge between marginal and average q, and both vary over time as good (bad) performance relaxes (tightens) financing constraints. Financial slack, not cash flow, is the appropriate proxy for financing constraints. Investment decreases with firm-specific risk, and is positively correlated with past profits, past investment, and managerial compensation even with time-invariant investment opportunities. Optimal contracting involves deferred compensation; possible termination; and compensation that depends on exogenous observable persistent profitability shocks, effectively paying managers for luck.
263 citations
TL;DR: In this article, the relation between working capital management and profitability for small and medium-sized enterprises (SMEs) was analyzed by controlling for unobservable heterogeneity and possible endogeneity.
Abstract: This paper analyzes the relation between working capital management and profitability for small and medium-sized enterprises (SMEs) by controlling for unobservable heterogeneity and possible endogeneity. Unlike previous studies, we examine a non-linear relation between these two variables. Our results show that there is a non-monotonic (concave) relationship between working capital level and firm profitability, which indicates that SMEs have an optimal working capital level that maximizes their profitability. In addition, a robustness check of our results confirms that firms’ profitability decreases as they move away from their optimal level.
256 citations
TL;DR: In this paper, the authors explore a simple model that companies can use to understand and improve supply chain sustainability practices, and apply this model in two case studies, Coca-Cola, a leader in global sustainability, and Apple, a company that only recently started to develop a sustainability strategy.
Abstract: Many companies are not dramatically changing to more sustainable environmental practices despite pressure from the investment community, the government and consumers. This study explores a simple model that companies can use to understand and improve supply chain sustainability practices. It applies this model in two case studies, Coca-Cola, a leader in global sustainability, and Apple, a company that has only recently started to develop a sustainability strategy. The model was developed through a review of existing research and an application of supply chain principles. The results of this study demonstrate that following this model to eliminate waste throughout the supply chain will make the supply chain more profitable. The outcomes from this study highlight the importance for every company to do so in order to stay competitive. This study is unique in the relative simplicity of its model, combined with the supporting evidence that a sustainable supply chain is the same as a supply chain that is using ...
249 citations
TL;DR: Using import tariffs and foreign exchange rates as instrumental variables for import penetration, this article showed that companies experiencing increases in import competition significantly reduce their leverage ratios by issuing equity and selling assets to repay debt, which is consistent with traditional trade-off models of capital structure that predict a positive relation between book leverage and expected future profitability.
244 citations
TL;DR: In this article, the authors present a model of a monopolistically competitive bank subject to repricing frictions, and test the model's predictions using a unique panel data set on UK banks.
Abstract: How does bank profitability vary with interest rates? We present a model of a monopolistically competitive bank subject to repricing frictions, and test the model’s predictions using a unique panel data set on UK banks. We find evidence that large banks retain a residual exposure to interest rates, even after accounting for hedging activity operating through the trading book. In the long run, both level and slope of the yield curve contribute positively to profitability. In the short run, however, increases in market rates compress interest margins, consistent with the presence of non negligible loan pricing frictions.
241 citations
01 Jan 2012
TL;DR: In this article, the effect of capital structure on profitability of industrial companies listed on Amman Stock Exchange during a six-year period (2004-2009) was analyzed by applying correlations and multiple regression analysis, the results reveal significantly negative relation between debt and profitability.
Abstract: This study seeks to extend Abor’s (2005), and Gill, et al., (2011) findings regarding the effect of capital structure on profitability by examining the effect of capital structure on profitability of the industrial companies listed on Amman Stock Exchange during a six-year period (2004-2009). The problem statement to be analyzed in this study is: Does capital structure affect the Industrial Jordanian companies? The study sample consists of 39 companies. Applying correlations and multiple regression analysis, the results reveal significantly negative relation between debt and profitability. This suggests that profitable firms depend more on equity as their main financing option. Yet recommendations based on findings are offered to improve certain factors like the firm must consider using an optimal capital structure and future research should investigate generalizations of the findings beyond the manufacturing sectors.
236 citations
TL;DR: In this paper, the authors evaluate the determinants of bank profitability in China and examine the effects of inflation on bank profitability, while controlling for comprehensive bank-specific and industry-specific variables.
Abstract: Purpose – The purpose of this paper is to evaluate the determinants of bank profitability in China. It examines the effects of inflation on bank profitability, while controlling for comprehensive bank‐specific and industry‐specific variables.Design/methodology/approach – The sample comprises a total of 101 banks (five state‐owned banks, 12 joint‐stock commercial banks and 84 city commercial banks). The period under consideration extends from 2003‐2009. The two step generalized methods of moments (GMM) estimators are applied.Findings – Empirical results exhibit that there is a positive relationship between bank profitability, cost efficiency, banking sector development, stock market development and inflation in China. The authors report that low profitability can be explained by higher volume of non‐traditional activity and higher taxation. Moreover, the authors confirm that there is a competitive environment in the Chinese banking industry. Furthermore, the authors propose policy actions that should be ta...
TL;DR: In this article, the authors explore commonalities across asset-pricing anomalies and assess implications of financial distress for the profitability of anomaly-based trading strategies, including price momentum, earnings momentum, credit risk, dispersion, idiosyncratic volatility, and capital investments.
Abstract: This paper explores commonalities across asset-pricing anomalies. In particular, we assess implications of financial distress for the profitability of anomaly-based trading strategies. Strategies based on price momentum, earnings momentum, credit risk, dispersion, idiosyncratic volatility, and capital investments derive their profitability from taking short positions in high credit risk firms that experience deteriorating credit conditions. In contrast, the value-based strategy derives most of its profitability from taking long positions in high credit risk firms that survive financial distress and subsequently realize high returns. The accruals anomaly is an exception - it is robust among high and low credit risk firms in all credit conditions.
Journal Article•
TL;DR: In this article, the authors develop an analytically tractable model integrating dynamic investment theory with dynamic optimal incentive contracting, thereby endogenizing financing constraints, and examine the implications of agency problems for the dynamics of firms' investment decisions and firm value.
Abstract: We develop an analytically tractable model integrating dynamic investment theory with dynamic optimal incentive contracting, thereby endogenizing financing constraints. Incentive contracting generates a history-dependent wedge between marginal and average q, and both vary over time as good (bad) performance relaxes (tightens) financing constraints. Financial slack, not cash flow, is the appropriate proxy for financing constraints. Investment decreases with idiosyncratic risk, and is positively correlated with past profits, past investment, and managerial compensation even with time-invariant investment opportunities. Optimal contracting involves deferred compensation, possible termination, and compensation that depends on exogenous observable persistent profitability shocks, effectively paying managers for luck. THE EFFICIENCY OF CORPORATE investment decisions can be compromised by frictions in external financing. One important source of financial market frictions involves agency problems. Firms do not have access to as much capital as they might like, or at low enough cost, because outside investors are wary of managers’ incentives to act in their own private interest. In this paper, we examine the implications of agency problems for the dynamics of firms’ investment decisions and firm value. We start with a standard dynamic model of corporate investment, the q theory of investment (see Hayashi (1982)). In the absence of fixed investment costsandnofinancialmarketfrictions,thefirmoptimallychoosesinvestmentto equate the marginal value of capital with the marginal cost of capital (including adjustment costs). With a homogeneous production technology, the marginal value of capital, that is, marginal q, equals the average value of capital, that
29 Oct 2012
TL;DR: This paper empirically demonstrate the existence of signs of both price and search discrimination on the Internet, and to uncover the information vectors used to facilitate them, and outlines the design of a large-scale, distributed watchdog system that allows users to detect discriminatory practices.
Abstract: Price discrimination, setting the price of a given product for each customer individually according to his valuation for it, can benefit from extensive information collected online on the customers and thus contribute to the profitability of e-commerce services. Another way to discriminate among customers with different willingness to pay is to steer them towards different sets of products when they search within a product category (i.e., search discrimination). Our main contribution in this paper is to empirically demonstrate the existence of signs of both price and search discrimination on the Internet, and to uncover the information vectors used to facilitate them. Supported by our findings, we outline the design of a large-scale, distributed watchdog system that allows users to detect discriminatory practices.
TL;DR: Several books examining family business published in the past 25 years may legitimately be labeled seminal as mentioned in this paper, including Keeping the Family Business Healthy: How to Plan for Continuing Growth, Profitability, and Family Leadership.
Abstract: Several books examining family business published in the past 25 years may legitimately be labeled seminal. Some of our earliest exposures were through autobiographies and biographies of well-known families: the Rothschilds, DuPonts, Fords, and others. Consultants such as Léon Danco, Gerald Le Van, and David Bork wrote books describing their observations and recommendations, giving readers perspectives on the relationships between families and their enterprises. In 1987, John Ward was among the first to produce a guide for family firms that was derived from a research base. Keeping the Family Business Healthy: How to Plan for Continuing Growth, Profitability, and Family Leadership proved to be influential to both practitioners and scholars, being reissued and updated. As we track the evolution of the field, other authors have also been influential. Generation to Generation: Life Cycles of the Family Business by Kelin Gersick, John Davis, Marion McCollom Hampton, and Ivan Lansberg is one of the most important contributions from the 1990s, and Managing for the Long Run: Lessons in Competitive Advantage From Great Family Businesses by Danny Miller and Isabelle Le Breton-Miller helped direct researchers in new ways as we entered the 21st century. Each of these three books has been reviewed previously in Family Business Review (Aronoff, 1996; Guzzo, 1988; Sharma, 2005). In this anniversary issue, we take another look at these bodies of work and the roles they have played in advancing knowledge, including reflections by the authors. Ward and the 1980s
Journal Article•
TL;DR: In this paper, the authors focused their attention on firm size and evaluated its influence on firm profitability and found that firm size has a significant positive (although weak) influence on the firm profitability.
Abstract: A firm may use different methods and diverse (non)financial analysis/indicators in order to evaluate its business success. However, one of the most widely applied methods refers to financial analyses that use profitability ratios as the key measures of firm’s overall efficiency and performance. In this research we focused our attention on firm size and evaluated its influence on firm profitability. Other than by the size of a firm, a firm performance is affected by a variety of internal and external variables. Therefore, apart from mere investigating the relationship between firm size and performance, we also explored the impact of some other variables crucial in determining firm profitability. The analysis was conducted for the 2002-2010 period and the results revealed that firm size has a significant positive (although weak) influence on firm profitability. Additionally, results showed that assets turnover and debt ratio also statistically significantly influence firms’ performance while current ratio didn’t prove to be an important explanatory variable of firms’ profitability.
TL;DR: In this paper, the authors investigated whether there exist intrinsic strategic characteristics which enable some firms to tolerate economic difficulties stronger than their companions, and whether SMEs as investments are providing return accordingly to their risk level.
Posted Content•
TL;DR: This paper showed that shorter-term debt is more volatile for short-term investments, making future investment incentives volatile and influencing immediate investment incentives, and that reducing the correlation between the value of assets-in-place and profitability of investment increases the overhang of shorter-time debt.
Abstract: Debt maturity influences debt overhang: the reduced incentive for highly- levered borrowers to make real investments because some value accrues to debt. Reducing maturity can increase or decrease overhang even when shorter-term debt's value depends less on firm value. Future overhang is more volatile for shorter-term debt, making future investment incentives volatile and influencing immediate investment incentives. With immediate investment, shorter-term debt typically imposes lower overhang; longer-term debt can impose less if firm value is more volatile in bad times. For future investments, reduced correlation between the value of assets-in-place and profitability of investment increases the overhang of shorter-term debt.
TL;DR: In this paper, the authors inspected whether bank-specific and macroeconomic determinants influence Islamic banks' profitability in selected countries of different regions and concluded that banks with larger assets size and with efficient management lead to greater return on assets.
Abstract: Purpose – The purpose of this paper is to inspect whether bank‐specific and macro‐economic determinants influence Islamic banks' profitability in the selected countries of different regions.Design/methodology/approach – In order to achieve the study objective and to answer the question, the balanced panel data regression model has been used. Bank level data is used and this study examines the alternative measures ROA and ROE as a bank‐specific function and macro‐economic determinants.Findings – The study results signify that banks with larger assets size and with efficient management lead to greater return on assets.Originality/value – The paper shows that management efficiency regarding operating expenses positively and significantly affects the banks' profitability.
TL;DR: In this article, the authors defined the factors and grounds affecting sub-contractors productivity and evaluated their overall negative side effects on project productivity via a structured questionnaire, a total of 31 factors selected and were divided into seven broad categories.
Abstract: The intense competition between the Iranian construction companies has led them to take all appropriate measures to decrease the costs as much as possible. Hence, due to the pivotal role of human resources in construction projects cost, a major part of Iranian construction companies seek their profitability and survival in maximizing the productivity of their operatives. Because of the widespread belief among contractors about the low productivity of daily workers and operatives with basic salary, they commit a major part of their projects activities to sub-contractors. Deployment of sub-contractors by construction firms has become largely conventional in country's construction projects. The aims of this paper is defined as determining the factors and grounds affecting sub-contractors productivity and evaluate their overall negative side effects on project productivity via a structured questionnaire. A total of 31 factors selected and were divided into 7 broad categories. The perceptions of compa...
TL;DR: In this article, the main land value capture finance (LVC) mechanisms (betterment tax, accessibility increment contribution, and joint development) are reviewed in relation to increased transport accessibility.
Patent•
IBM1
TL;DR: In this article, the relative risk of a particular country compared to selected groups of countries, for example countries having emerging or developing economies and groups including countries having developed economies, is assessed.
Abstract: The reward or return a company receives in a particular country relative to the risk the company takes in that country is assessed. The relative risk of the particular country compared to selected groups of countries, for example groups including countries having emerging or developing economies and groups including countries having developed economies. The relative profitability of the particular country in relation to the profitability of such groups of countries is further considered in the assessment. Other return components are also considered to allow risk adjusted decisions.
TL;DR: In this paper, a techno-economic evaluation method for the energy retrofit of buildings is introduced, geared toward finding the economically optimal set of retrofit measures, where split incentives of building owners and users are considered explicitly in a conventional (static) evaluation to identify the investment alternatives maximizing the net present value (NPV).
TL;DR: In this article, the authors investigate the effects of entrepreneurial human capital on SME performance using data on 2,713 SMEs within the European Union and find that both profitability and productivity are positively related to industry-specific knowledge possessed by the CEO-owner prior to starting up the firm and the general business knowledge acquired once the firm is up and running.
Abstract: In this study, we investigate the effects of entrepreneurial human capital on SME performance using data on 2,713 SMEs within the European Union. Performance was measured in two ways: profitability as ROA and productivity as revenue per employee. Results indicate that both profitability and productivity are positively related to industry-specific knowledge possessed by the CEO-owner prior to starting up the firm and the general business knowledge acquired once the firm is up and running. Experience as a result of having previously worked in a firm in the same industry before starting a business was related to productivity, but there is no relation with profitability. There is a link between performance and inclusion of other CEO-owners in the founder’s inner circle of advisors. This relationship is positive when the advisor’s venture has experienced failure and negative when the advisor’s venture has been successful. We discuss the significance of these findings for research and practice.
Journal Article•
TL;DR: In this paper, the relationship between credit risk and profitability of some selected banks in Ghana was analyzed using the fixed effects framework, which revealed that credit risk has a positive and significant relationship with bank profitability.
Abstract: This study attempts to reveal the relationship between credit risk and profitability of some selected banks in Ghana. A panel data from six selected commercial banks covering the five-year period (2005-2009) was analyzed within the fixed effects framework. In Ghana, the average lending/interest rate is about 30% - 35% per annum. From the results credit risk (non-performing loan rate, net charge-off rate, and the pre-provision profit as a percentage of net total loans and advances) has a positive and significant relationship with bank profitability. This indicates that banks in Ghana enjoy high profitability in spite of high credit risk, contrary to the normal view held in previous studies that credit risk indicators are negatively related to profitability. Our results can be attributed to the prohibitive lending/interest rates, fees and commission (non- interest income) charged. Also, we found support for previous empirical works which depicted that bank size, bank growth and bank debt capital influence bank profitability positively and significantly. Keywords : Credit Risk, Profitability, Banks, Ghana.
TL;DR: In this article, the effects of corporate governance on bank performance during the financial crisis of 2008 were examined using data on large publicly traded U.S. banks, and it was shown that banks with strong corporate governance practices had substantially higher stock returns in the aftermath of the market meltdown, indicating that good governance may have mitigated the adverse influence of the crisis on bank credibility.
Abstract: This paper focuses on the effects of corporate governance on bank performance during the financial crisis of 2008. Using data on large publicly traded U.S. banks, we examine whether banks with stronger corporate governance mechanisms were associated with higher profitability and better stock market performance amidst the crisis. Our empirical findings on the effects of corporate governance on bank performance are mixed. Although the results suggest that banks with stronger corporate governance mechanisms were associated with higher profitability in 2008, our findings also indicate that strong governance may have had negative effects on stock market valuations of banks amidst the crisis. Nevertheless, we document that banks with strong corporate governance practices had substantially higher stock returns in the aftermath of the market meltdown, indicating that good governance may have mitigated the adverse influence of the crisis on bank credibility.
TL;DR: In this article, the authors study sell-side analysts' ability to rank industries relative to each other (across-industry expertise), and find that analysts express more optimism towards industries with higher levels of investment, past profitability, and past returns.
TL;DR: In this article, a new investment decision-making model was proposed, applicable to all investment types, based on questionnaires submitted to finance managers of 35 major electricity consumers in various commercial and industrial sectors.
Abstract: “Investment in energy efficiency: do the characteristics of firms matter?” In their famous 1998 paper, DeCanio and Watkins raised the question and answered it affirmatively. Our paper addresses a parallel question: “Investment in energy efficiency: do the characteristics of investments matter?” To answer this question, we first describe our new investment decision-making model, applicable to all investment types. We then discuss our research results, based on questionnaires submitted to finance managers of 35 major electricity consumers in various commercial and industrial sectors. We show how characteristics other than profitability play an important role in investment choices. The investment category influences profitability evaluation, profitability requirement, and, ultimately, the decision made. For half of the firms in our study, energy-efficiency investments did not exist as a category. However, wide diversity regarding investment behavior is observed between firms. Our findings lead to a different explanation of the energy-efficiency gap and open the way for a new approach to promoting energy-efficiency investments, which is briefly discussed in the conclusion.
Journal Article•
TL;DR: In this article, the authors investigate the relationship between working capital management components and performance of the firms by using dynamic panel data analysis and demonstrate that firms can increase profitability measured by gross operating profit by shortening collection period of accounts receivable and cash conversion cycle.
Abstract: The working capital management has an important role for the firm’s success or failure because of it’s’ effect on firm’s performance and liquidity. The study is based on secondary data collected from 75 manufacturing firms listed on Istanbul Stock Exchange Market for the period 2002-2009 with an attempt to investigate the relationship between working capital management components and performance of the firms by using dynamic panel data analysis. The results demonstrate that firms can increase profitability measured by gross operating profit by shortening collection period of accounts receivable and cash conversion cycle. Leverage as a control variable has a significant negative relationship with firm value and profitability of firms. This means, increase in the level of leverage will lead to decline in the profitability of the firm and the value of the firm. Keywords: Working capital management; Cash Conversion Cycle; Tobin Q JEL Classifications: G39; C22