Showing papers on "Profitability index published in 2019"

Quality Minus Junk

Abstract: We define quality as characteristics that investors should be willing to pay a higher price for. Theoretically, we provide a tractable valuation model that shows how stock prices should increase in their quality characteristics: profitability, growth, and safety. Empirically, we find that high-quality stocks do have higher prices on average but not by a large margin. Perhaps because of this puzzlingly modest impact of quality on price, high-quality stocks have high risk-adjusted returns. Indeed, a quality-minus-junk (QMJ) factor that goes long high-quality stocks and shorts low-quality stocks earns significant risk-adjusted returns in the United States and across 24 countries. The price of quality varies over time, reaching a low during the internet bubble, and a low price of quality predicts a high future return of QMJ. Analysts’ price targets and earnings forecasts imply systematic quality-related errors in return and earnings expectations.

Environmental, social, and governance and company profitability: Are financial intermediaries different?

Abstract: This paper investigates the association between environmental, social, and governance (ESG) disclosure and company profitability, as measured by return on assets (ROA). We first assess a method to indexing the ESG score of a large sample of U.S. listed companies based on MSCI ESG KLD STATS data from 2000 to 2016. The statistical model is run on 17,358 observations and studies the association of ROA and the three different dimensions of ESG score. Significant differences between industrial firms and financial intermediaries emerge. We find a significant and positive association between ESG and that the environmental awareness in banks is strongly related to profitability, providing implications for policy makers and policy takers.

Hydrogen Storage Optimal Scheduling for Fuel Supply and Capacity-Based Demand Response Program Under Dynamic Hydrogen Pricing

Abstract: As the emerging technology offers more economic and efficient mechanisms for hydrogen production, fuel cell electric vehicles (FCEVs) are expected to be deployed more extensively in the near future. Proliferation of hydrogen fueling stations throughout the transportation network and justifying their economic viability are key factors to the success of the FCEVs. In today’s deregulated market environment, many governments are encouraging private investors to invest in key infrastructures including the hydrogen fueling stations. To that end, this paper proposes a new model for optimal scheduling of privately owned hydrogen storage stations to both serve the transport sector and the electricity market operator. The model mainly aims to: 1) exploit the lower electricity market prices to reduce the power purchase cost and 2) contribute to the capacity–based demand response program to further enhance the economic feasibility of the investment. The profitability constraints and dynamic hydrogen pricing mechanisms are incorporated into the optimization process to guarantee the economic feasibility of the investment. Through such constraints, hydrogen sale prices would dynamically change to maintain system profitability at the lowest possible hydrogen price. Numerical studies reveal that the stacked profit from the two aforementioned sources of revenue under the proposed model would lead to a stronger rate of return.

Capital structure and firm size on firm value moderated by profitability

Abstract: The purpose of this study is to determine the effect of capital structure and firm size on firm value, moderated by profitability. The sample of this research is mining sector companies listed on IDX. This research uses the non-participant observation method with path analysis technique. The method of data analysis used is multiple linear regression with data analysis tool using SPSS 22. Based on the analysis results, it was concluded that capital structure has a significant positive effect on firm value while firm size has a significant negative effect on firm value. Profitability has no significant effect on firm value, whilst company size has a significant positive effect on profitability. However, profitability is not able to mediate the influence of capital structure and firm size on firm value.

Intellectual Capital Performance and Profitability of Banks: Evidence from Pakistan

Abstract: The study contributes to the existing literature on intellectual capital (IC) performance and profitability by extending evidence from Pakistan. The study examines the impact of IC performance on the profitability of Pakistani financial institutions. It further examines how corporate governance, bank specific, industry specific, and country specific indicators effect Pakistani banks’ profitability. The result reports both the linear and non-linear impact of IC performance on profitability, which affirms an inverted U–shaped relationship. Among the three value added intellectual coefficient (VAIC) components, capital employed efficiency (CEE), and human capital efficiency (HCE) are found to have a significantly positive and structural capital efficiency (SCE) is found to have a significantly negative impact on bank profitability. The study notes a positive impact on profitability of factors like board independence, directors’ compensation, and higher capitalization. It reports a negative impact on profitability of factors like board size, board meetings, credit risk, industry concentration and economic growth. The results also indicate low profitability of banks during the period of government transition. The study provides insights into the important profitability drives and suggests that the impact of investment in IC on profitability is limited to an extent. The findings of this study are likely to be useful for policy makers, management, and academics.

Fuzzy criteria programming approach for optimising the TBL performance of closed loop supply chain network design problem

Abstract: Immense concern for sustainability and increasing stakeholders’ involvement has sparked tremendous interest towards designing optimal supply chain networks with significant economic, environmental, and social influence. Central to the idea, this study aims to design a closed loop supply chain (CLSC) network for an Indian laptop manufacturer. The network configuration, which involves a manufacturer, suppliers, third party logistics providers (forward and reverse), retailers, customers and a non-government organisation (NGO), is modelled as a mixed integer linear programming problem with fuzzy goals of minimising environmental impact and maximising net profit and social impact, subject to fuzzy demand and capacity constraints. Profit is generated from the sale of primary and secondary laptops, earned tax credits, and revenue sharing with reverse logistics providers. The environmental implications are investigated by measuring the carbon emitted due to activities of manufacturing, assembling, dismantling, fabrication, and transportation. The social dimension is quantified in terms of the number of jobs created, training hours, community service hours, and donations to NGO. The novelty of the model rests on its quantification of the three triple bottom line (TBL) indicators and on its use of AHP–TOPSIS for modelling the multi-criteria perspectives of the stakeholders. Numerical weights for the triple lines of sustainability are utilized. Further, a fuzzy multi-objective programming approach that integrates fuzzy set theory with goal programming techniques is utilised to yield properly efficient solutions to the multi-objective problem and to provide a trade-off set for conflicting objectives. The significance of the CLSC model is empirically established as a decision support tool for improving the TBL performance of a particular Indian laptop manufacturer. Practical and theoretical implications are derived from the result analysis, and a generalised quantitative closed-loop model can be effectively adapted by other electronic manufacturers to increase their competitiveness, profitability, and to improve their TBL.

Reinforcement Learning in Financial Markets

Abstract: Recently there has been an exponential increase in the use of artificial intelligence for trading in financial markets such as stock and forex. Reinforcement learning has become of particular interest to financial traders ever since the program AlphaGo defeated the strongest human contemporary Go board game player Lee Sedol in 2016. We systematically reviewed all recent stock/forex prediction or trading articles that used reinforcement learning as their primary machine learning method. All reviewed articles had some unrealistic assumptions such as no transaction costs, no liquidity issues and no bid or ask spread issues. Transaction costs had significant impacts on the profitability of the reinforcement learning algorithms compared with the baseline algorithms tested. Despite showing statistically significant profitability when reinforcement learning was used in comparison with baseline models in many studies, some showed no meaningful level of profitability, in particular with large changes in the price pattern between the system training and testing data. Furthermore, few performance comparisons between reinforcement learning and other sophisticated machine/deep learning models were provided. The impact of transaction costs, including the bid/ask spread on profitability has also been assessed. In conclusion, reinforcement learning in stock/forex trading is still in its early development and further research is needed to make it a reliable method in this domain.

Do Stakeholder Orientation and Environmental Proactivity Impact Firm Profitability

Abstract: The impact of socially responsible corporate behavior on economic performance is a major preoccupation of managers today. This article explores the links between narrowly defined constructs: stakeholder orientation, environmental proactivity and profitability, from the perspectives of stakeholder theory and resource-based theory. We collected data on the food and beverage, and household and personal products industries. Using structural equation modeling, this paper makes two contributions. We found a negative link between companies simply having a higher stakeholder orientation and profitability. Importantly, however, environmental proactivity not only had a positive impact on profitability, but also appeared to mediate the relationship between stakeholder orientation and profitability. In other words, if a company is more environmentally proactive, it will be more attentive to a broad array of stakeholders, and this will in turn contribute positively to profitability.

The Effects of Liquidity, Firm Size, and Profitability on the Firm Value with Mediating Leverage

Abstract: The objective of this present research is to obtain empirical evidence of the effects of leverage in mediating the firm size, profitability and liquidity on the firm value. The object of the research was go public property and real estate firms in the Indonesia Stock Exchange in the period of 2012-2016. Thirty one firms serving as the sample were taken using a purposive sampling method. A path analysis with software Linear Structural Relationship (LISREL) version 8.8 was employed to analyze the data. The results of the research showed that it was merely profitability variable which directly gave a significant and positive effect on the firm value. Whereas liquidity and size variables directly gave a negative, although insignificant effect. The results of the testing proved that leverage is a variable which mediates the effect of liquidity, size and profitability on the firm value. Keywords: liquidity, Leverage, firm size, profitabilit, firm value.

The impact on competitiveness of customer value creation through relationship capabilities and marketing innovation

Abstract: The identification of customer needs through relationship management and their transformation into marketing innovation are two key processes in customer value creation. When combined, they can improve a firm’s competitive position, not only in terms of profitability but also by reducing costs and promoting the use of technology. The purpose of this paper is to analyze the link between managerial relational capability and marketing innovation in customer value creation, and to look at how that value creation affects competitiveness.,We analyze 450 small- and medium-sized enterprises (SMEs) in the furniture industry in the metropolitan area of Guadalajara (Mexico). To this sample is applied a confirmatory factor analysis and a structural equation model to analyze the impact of management capabilities in relationships and marketing innovation on customer value creation and to determine how the value created affects competitiveness.,The results show that management capabilities in customer relationships and in the way they convert knowledge of customer needs into specific choices in the market have a positive effect on customer value creation, as well as on financial performance, cost optimization and the use of technology, all of which can be used as indicators of competitiveness.,The study covers customer value creation in an emerging economy, that of Mexico, and relates it to business competitiveness from a holistic point of view which goes beyond profitability by also including cost reduction and the use of technology.

Does efficiency help banks survive and thrive during financial crises

Abstract: We examine how bank efficiency during normal times affects survival, risk, and profitability during subsequent financial crises using data from five U.S. financial crises and preceding normal times. We find that cost efficiency during normal times helps reduce bank failure probabilities, decrease risk, and enhance profitability during subsequent financial crises, while profit efficiency has limited benefits. Results suggest that cost efficiency better measures management quality, while profit efficiency may partially reflect temporary high returns from risky investments during normal times. Findings have policy implications and imply that improving bank cost efficiency during normal times may promote better financial crisis performance.

Determinants of Bank Profitability—Evidence from Vietnam

Abstract: This article investigates the determinants of bank profitability in Vietnam covering the period from 2006 to 2014. Employing a number of econometric panel data methods with a unique dataset, the fi...

Bank Performance in China: A Perspective from Bank Efficiency, Risk-taking and Market Competition

Abstract: The current paper contributes to the empirical literature on bank profitability by testing the joint-impact of different types of risk, competition in different banking markets and different types of efficiency on bank profitability using a sample of Chinese commercial banks over the period 2003–2017 In particular, we fill in the gap of the empirical studies by examining the impact of efficiency on profitability when banks undertake different levels of risk-taking behaviour and face different degrees of competition The results show that competition in the Chinese banking markets (deposit market, loan market and non-interest income market) is stronger over the period 2003–2005 and also 2014–2017 In addition, it is found that bank size, cost efficiency, profit efficiency and inflation are significantly related to bank profitability Finally, we find that the positive impact of cost efficiency on profitability is stronger when banks undertake higher levels of risk and face more competition

Sticky Expectations and the Profitability Anomaly

Abstract: We propose a theory of the “profitability” anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional model predictions: (1) analysts are on average too pessimistic regarding the future profits of high‐profit firms, (2) the profitability anomaly is stronger for stocks that are followed by stickier analysts, and (3) the profitability anomaly is stronger for stocks with more persistent profits.

Economic analysis of distributed solar photovoltaics with reused electric vehicle batteries as energy storage systems in China

Abstract: As the development of distributed solar photovoltaics (DSPV), battery energy storage systems are growing in popularity to promote the performance of DSPV, for both mitigating the impact on the grid and increasing the economic performance. In the meantime, reused batteries retired from electric vehicles provide another option for energy storage systems. In this paper, the economic performance evaluated by net present value of DSPV with reused batteries as energy storage systems (RBESS) is studied at the provincial level in China, so as to depict a comprehensive understanding of the current DSPV status and the development potential of RBESS in China. Instead of only focusing on the role of increasing the percentage of self-consumption (Model 1), a combined usage strategy of RBESS (Model 2) is also proposed. Moreover, the residual value of lithium-ion batteries is taken into consideration in this paper. Our results show that for the residential sector, only a small number of areas can benefit from RBESS under Model 2, while none can benefit under Model 1. Only when the price of RBESS decreases to 200 CNY/kWh, the profitability could be nationwide. However, for the commercial and industrial sector, the performance of RBESS is much better. In the majority of areas, integrating RBESS with DSPV is already profitable.

Wide and deep learning for peer-to-peer lending

Abstract: This paper proposes a two-stage scoring approach to help lenders decide their fund allocations in peer-to-peer (P2P) lending market. The existing scoring approaches focus on only either probability of default (PD) prediction, known as credit scoring, or profitability prediction, known as profit scoring, to identify the best loans for investment. Credit scoring fails to deliver the main need of lenders on how much profit they may obtain through their investment. On the other hand, profit scoring can satisfy that need by predicting the investment profitability. However, profit scoring is not free from the imbalance problem where most of the past loans are non-default. Consequently, ignorance of the imbalance problem significantly affects the accuracy of profitability prediction. Our proposed two-stage scoring approach is an integration of credit scoring and profit scoring to address the above challenges. More specifically, stage 1 is designed to identify non-default loans while the imbalanced nature of loan status is considered in PD prediction. The loans identified as non-default are then moved to stage 2 for prediction of profitability, measured by internal rate of return. Wide and deep learning is used to build the predictive models in both stages to achieve both memorization and generalization. Extensive numerical studies are conducted based on real-world data to verify the effectiveness of the proposed approach. The numerical studies indicate our two-stage scoring approach outperforms the existing credit scoring and profit scoring approaches.

Determinants of firm profitability in the Croatian manufacturing industry: evidence from dynamic panel analysis

Abstract: Given that the goal of this study was to examine the influence of different factors on a firm’s profitability, we designed a model with three categories of profitability determinants: firm-specific...

Do SMEs Benefit from Unconventional Monetary Policy and How? Microevidence from the Eurozone

Abstract: We study the impact of the announcement of the European Central Bank's (ECB's) Outright Monetary Transactions Program on small firms’ access to finance using a matched firm‐bank data set from eight Eurozone countries. We find that following the announcement, credit access improved relatively more for firms borrowing from banks with high balance sheet exposures to impaired sovereign debt, with such firms less likely to be refused a loan or to be price rationed. Loan terms also improved as manifested by lengthening of loan maturities. Unconventional monetary policy has a positive impact on firms’ investment and profitability, while its effect on firm innovation is weaker.

Determinants of dividend policy: evidence from an emerging and developing market

Abstract: The purpose of this paper is to identify the determinants of dividend policy in an emerging and developing market.,The study employs a quantitative approach using 191 Sri Lankan firms and 1,337 firm-year observations as the sample. The authors apply a Binary Logistic Regression model to uncover the determinants of the propensity to pay dividends, and a Fixed Effect Panel Regression to investigate the determinants of dividend payout.,The authors identify past dividend decision, earnings, investment opportunities, profitability, free cash flow (FCF), corporate governance, state ownership, firm size and industry influence as the key determinants of propensity to pay dividends. In addition past dividends, investment opportunities, profitability and dividend premium are identified as the determinants of dividend payout. Moreover, there is a feedback between dividend yield and profitability in one lag and between dividend yield and dividend premium in two lags, as short-term relationships. Hence, past dividend decision or payout, profitability and investment opportunities are a common set of determinants with implications for both propensity to pay dividends and its payout. The findings support theories of dividends such as signaling, outcome, catering, life cycle, FCF and pecking order.,The findings are important for investors, managers and future research. Investors should focus on the determinants identified by our study when making investment decisions whereas managers should practice the same when formulating appropriate dividend policies for their firms. Future research should rely on propensity to pay dividends and its payout simultaneously to promote a theoretical consensus on the dividend determinant puzzle.,This is the first study that investigates determinants of propensity to pay dividends and dividend payout along with short-term relationships in a single study.

Operating Leverage, Profitability, and Capital Structure

Abstract: Operating leverage increases profitability and reduces optimal financial leverage. Thus, operating leverage generates a negative relation between profitability and financial leverage that is thought to be inconsistent with the trade-off theory but is commonly observed in the data. We demonstrate the effect of operating leverage on firms’ profitability and financial leverage, as well as on the empirical relation between profitability and financial leverage, by using China’s entry into the World Trade Organization in 2001 and its effect on the capital–labor ratio of U.S. firms.