Abstract

Start-up firms play a major role in the economy, with B2B start-ups often developing new technologies and offerings to business customers that incumbent firms do not provide. However, little is known about the cost-effectiveness of start-up firms’ investments in marketing. We integrate insights from managerial interviews with signaling theory to posit how conducting systematic marketing affects start-up firm valuation, and how the combination of the firm’s primary customer-type (B2B versus B2C) and development stage (early versus late) moderates that effect. Our empirical analysis reveals that marketing investments affect firm valuation positively for some start-ups and negatively for others depending on the noted moderators. In particular, we find that investments in systematic marketing by early-stage B2B start-ups increase firm valuation, yet more than half of early-stage B2B start-up firms choose not to invest in systematic marketing, apparently believing such investments will not pay off.

Introduction

Business-to-business (B2B) start-up firms are major drivers of economic growth as they produce new technologies and offerings that incumbent firms cannot or are reluctant to provide (Dörner, Flötotto, Henz, & Strålin, 2021). In aggregate, start-up firms are responsible for 10% of all worldwide job growth between 2017 and 2021(Wijngaarde, 2021), while B2B focused start-ups make up 71% of reported start-up sales in the US Census Bureau’s 2015 Annual Survey of Entrepreneurs (U.S. Census Bureau, 2017). However, despite the importance of start-up firms, it is difficult for either B2B or business-to-consumer (B2C) start-up firms to succeed: only about 50% of start-up firms survive for five or more years (U.S. Bureau of Labor Statistics, 2016).

Allocating resources to marketing could potentially help a start-up increase its likelihood to succeed since focusing on marketing reduces ambiguity about the firm, its value proposition, and its offerings (e.g., Acar, Dahl, Fuchs, & Schreier, 2021). Further, a start-up that allocates significant resources to marketing is signaling to investors that the firm is focusing on its customers and is creating and delivering value to them (Halberstadt et al., 2021). Yet, start-up firms are 60 times more likely to report being resource constrained than to report possessing sufficient resources for their development (Evans & Jovanovic, 1989; Wasserman, 2012). That resource constraint limits what functions start-ups can allocate scarce resources (O’Toole & McGrath, 2018), which, in turn, impacts start-up firms’ actions (Fernhaber & Patel, 2012) and ultimately their survival and performance (Dencker & Gruber, 2015).

Consequently, for start-up firms, to conduct systematic marketing — that is, following Moorman and Day’s (2016) definition of a systematic marketing organization based on four “C’s”, e.g., capabilities, configuration, (human) capital, and culture, operating on an on-going basis — often requires directing scarce resources from other aspects of their business. As a result, as confirmed through our multi-method approach that involved interviews, secondary data, and a follow-up survey, many start-ups do not report conducting systematic marketing, but instead report either not conducting any marketing or only conducting marketing on an ad hoc and opportunistic basis.1 One (typical) interview response about marketing’s role was “Marketing?? We don’t do any real marketing…we have much more important issues than marketing to focus on.” A 2015 Capital One survey of small business owners supports this observation, reporting that 76% of owners face marketing challenges, 64% feel they are unable to effectively market their businesses, and 39% report that their firms have not executed any marketing initiatives in the past six months (Capital One, 2015).

Discussion

This research investigates whether and when conducting systematic marketing benefits start-up firms, an important topic that has been rarely addressed in the marketing literature. We develop a conceptual model of the antecedents and consequences of conducting systematic marketing that includes the interactions of two firm characteristics – type of customer and stage of development– to determine when conducting systematic marketing should be more or less beneficial to startup firms. We test our conceptual model using a rich dataset on start-up firms provided by Equidam, an online start-up firm valuator, through a wide range of robustness tests, and with an analysis of an independent survey of start-up firms. In each of these analyses, we find strong support for our conceptual model and associated hypotheses. One key finding challenges current practice: while we find that conducting systematic is more beneficial to early-stage B2B start-up firms than to any other category of firm, such firms are the least likely to conduct systematic marketing.

Abstract

Exploiting the global financial crisis of 2007–08 as an exogenous shock that resulted in a significant decline in the ownership of foreign institutional investors (FIIs) in the Indian equity market, we find evidence of a causal link between FIIs’ ownership and different dimensions of board monitoring. Specifically, the empirical results suggest that higher FIIs ownership leads to lower board size, busyness, network size, CEO power, CEO pay, and improved board diligence. However, we also document a negative link between FIIs’ ownership and board independence, indicating that FIIs do not view independent directors as effective monitors. In terms of implications, our results suggest that improved board monitoring, induced by higher FIIs’ ownership, leads to higher firm valuation and innovation activities.

Introduction

Although boards are recognized as a powerful internal corporate governance mechanism, their effectiveness can vary significantly (Adams et al., 2010, Tung, 2011).1 This has spurred research into the underlying causes and strategies for enhancing board effectiveness. Implementing effective internal corporate governance mechanisms that enhance board effectiveness is associated with reducing information asymmetry and agency risks (Jensen and Meckling, 1976, Renders et al., 2010). Existing literature provides support to this conjecture (e.g., Brick and Chidambaran (2010) and Conheady et al. (2015)) by showing a positive association between board monitoring, its effectiveness, and firm value.2

Our study adds to this growing area of literature by examining the influence of foreign institutional investors (FIIs) as a source of external corporate governance mechanism on the internal corporate governance mechanism, namely board effectiveness. Gillan and Starks (2003) offer a theoretical argument that growth in FIIs’ ownership should result in improved board monitoring and overall governance of the host firm.3 The literature highlights the role of FIIs in shaping corporate governance due to their substantial ownership in firms. FIIs are able to monitor board and management activities through voting rights and incentives via cash-flow rights. For instance, Bena et al., 2017, Ferreira and Matos, 2008, and Aggarwal et al. (2011) show that FIIs’ monitoring efforts are primarily directed toward enhancing long-term firm performance, demonstrating that FIIs can curb managers’ incentives to overinvest and improve governance, particularly in countries with weak shareholder protection. FIIs act as independent monitors, being non-domestic investors with limited ties to the host firms, thereby reducing agency costs and improving board monitoring quality (Gillan and Starks, 2003, Tsang et al., 2019). They are also more likely to exit investments in firms with subpar governance (Leuz et al., 2009). FIIs’ independence from local political pressure allows them to perform arms-length monitoring and resist decisions that do not maximize shareholder value. Moreover, their deep understanding of global corporate governance practices, experience, demand for information disclosure, and superior monitoring technologies empower them to foster better governance practices and board monitoring (Grinblatt & Keloharju, 2000). Unsurprisingly, anecdotal evidence suggests that FIIs influence board monitoring by removing directors whose decisions do not maximize their wealth and expropriate minority shareholders.4

Conclusion

One of the key trends in the global financial market during the financial crisis of 2007–08 was the “flight of capital” from emerging markets to developed economies. India, one of the largest emerging economies, also witnessed a substantial outflow of foreign capital in the aftermath of the crisis. From an empirical identification point of view, this crisis represents an unexpected negative shock to FIIs’ ownership in India, making it an ideal set-up to investigate the role of FIIs in influencing the monitoring role of boards. In this study, we focus on the four years pre-crisis and post-crisis beginning in 2008 and use different proxies of board monitoring to evaluate the impact of FIIs on the board monitoring of the firms in which they invest.

The literature on corporate governance notes that FIIs, being informed and sophisticated investors, have the incentive and ability to improve board monitoring. Our study adds to this literature by providing causal evidence of FIIs’ influential role in enhancing the effectiveness of board monitoring. Consistent with economic arguments, the results show that firms with higher FIIs’ ownership are associated with lower board size, busyness, network size, CEO power, CEO pay, and higher board diligence. Interestingly, we also find that FIIs prefer lower board independence in India. However, our result on board independence is counter-intuitive but not surprising, given the empirical evidence that managers in emerging markets may appoint directors independent from the regulators’ point of view. However, they are still connected and sympathetic to the existing management. We also find that FIIs improve the performance of the firms through their improved board monitoring role. Specifically, we find that the enhanced board monitoring by FIIs improves both firm value and corporate innovation measures.

Abstract

We investigate whether accounting information system quality has an impact on the level and efficiency of firms’ investments. While firms’ growth depends on investment and financing decisions, accounting information is fundamental for the decision-making of several stakeholders. We assess the accounting information system quality by discretionary accruals, whereas the investment inefficiency is estimated by the residuals of an investment regression for a sample of 3073 Portuguese SMEs from 27 industries, over the period from 2016 to 2021 using a panel regression analysis. The empirical evidence suggests that firms exhibiting higher accounting information system quality tend to invest more. In addition, firms with a lower accounting information system quality have more inefficient investments, as they tend to engage in more overinvestment, although this is not significant for underinvestment. Therefore, this study provides new evidence regarding the impact of accounting information systems on investment that may be useful for several stakeholders, such as managers, creditors, regulators, and academics, by providing evidence for SMEs, where empirical studies are scarce.

Introduction

Accounting information system quality is essential to accurately communicate the current and expected financial/economic position of firms. Financial statements are the main source of information for stakeholders to make decisions (Francis et al. 2004; Yuan et al. 2022). Therefore, it is essential that the information disclosed is transparent and reflects the true and fair view of the firm. Bhattacharya et al. (2013) for the United States and Cerqueira and Pereira (2015) for Europe find empirical evidence that the quality of accounting information contributes to mitigating information asymmetry which in turn means a reduction in the cost of raising funds. Therefore, prior literature has investigated factors that may lead to activities that degrade accounting information system quality, aiming at creating mechanisms to mitigate those activities, thereby improving accounting information system quality. However, Jones (1991) argues that these activities are not easy to detect.

In the context of agency theory and stakeholder theory, the decision-making of investors and creditors depends on the quality of the accounting information system, as mentioned by McNichols and Stubben (2008) and Biddle and Hilary (2006). In the case of investment, it is a fundamental factor for the sustainability and growth of firms, which implies attracting investors and/or obtaining funding from banks. Firms have assets available to develop their economic activities due to their investment ability, affecting their intrinsic value. In addition, Alkafaji et al. (2023) emphasize that investment in information technology tends to reduce the cost of producing accounting information and increases its reliability. The efficiency of a firm’s investment directly affects its survival and development and, in macroeconomic terms, the allocation of resources in society. However, investment inefficiency is usually observed in most firms, specifically overinvestment or underinvestment. Therefore, Ma and Jeong (2022) argue that it is necessary to promote the efficiency of firms’ investment. In the same vein, Gaio et al. (2023) and Lambert et al. (2007) suggest that the increase in the quality of financial reports leads to relevant economic implications in firms, such as the efficiency of investments made. Moreover, Pereira et al. (2023a) find empirical evidence that Portuguese small and medium entities (SMEs) with higher levels of investment tend to have a more conservative accounting practice to capture investors’ confidence.

Conclusions

This study analyzes the effect of accounting information system quality on the investment level and investment efficiency of Portuguese SMEs. From the empirical evidence obtained in this study, it is possible to conclude that firms with a higher accounting information system quality have a greater tendency to invest. This can be explained by the fact that these firms with a higher accounting information system quality exhibit more reliable and transparent financial statements, so they convey greater confidence to investors and banks, and it is possible to attract more financing that can be subsequently allocated to investment in fixed assets.

To further develop the analysis, the association of accounting information system quality with investment (in)efficiency is analyzed. The results suggest that a lower accounting information system quality enhances the trend of overinvestment. In this sense, managers tend to report a better financial performance to capture more funds for financing investments. Therefore, if the financial statements do not report the true and fair view of the firms, managers may fall into the error of overinvestment, namely in projects with a negative NPV, which in turn may lead to a waste of resources and affect the survival and growth of the firms. Regarding the underinvestment, the lower quality the accounting information system, the lower the tendency for underinvestment. This result is the opposite to Linhares et al. (2018) and Verdi (2006) and may be explained by the fact that even if financial statements give the true situation, shareholders may not invest, even with positive NPV opportunities, if the indebtedness level is high, as it would imply that most of the benefits would be captured by the creditors (Pereira et al. 2023a).

Abstract

In the current complex global economic background, international capital flows are becoming more frequent. Based on this, this paper takes international portfolio investment as the research object and empirically tests the causal relationship and control channel between international portfolio flows and macrofinancial risk in emerging economies. It selects the panel data of emerging economies from 2001 to 2020, constructs macrofinancial risk indicators by using contingent claim analysis and the entropy-based TOPSIS method, tests the effect of international portfolio flows on macrofinancial risk by using the panel distributed lag regression model, and explores the management effect of foreign exchange reserves and capital controls on the risk effect by using the panel threshold regression model. The results show that long-term international portfolio flows help reduce macrofinancial risk, but short-term capital flows appear to increase macrofinancial risk. In addition, both foreign exchange reserves and capital controls effectively reduce the risk effect of portfolio flows. However, when considering different types of portfolios, we find that foreign exchange reserves do not effectively control the risk effect of equity securities flows, while stricter capital controls do. This paper argues that emerging economies should be more open to international long-term portfolio flows, focus on the monitoring of short-term portfolio capital flows and equity securities flows, and coordinate the use of foreign exchange reserves and capital control instruments to manage the risk effects of portfolio flows. This paper verifies the risk effect of international portfolio investment flows through empirical analysis, tests the effectiveness of foreign exchange reserves and capital controls, and provides a decision-making reference for emerging economies to timely identify, effectively manage, and prevent the risk effect of international capital flows.

Introduction

In the context of the current COVID-19 pandemic and the Russia-Ukraine conflict, recessionary expectations of “high inflation” and “weak growth” in the United States, Europe, and other advanced economies have continued to rise, and global economic activities have been severely impacted [1]. Advanced economies, represented by the United States, implemented quantitative easing and fiscal stimulus policies to stabilize financial markets and protect economic development in response to the resulting economic recession. As high inflation continued to rise under the policy mix, the Federal Reserve began to reduce inflation by significantly increasing interest rates and tightening liquidity. Emerging economies have historically risen with the wave of industrialization through industrial transfer, aided by ample international capital liquidity. However, the Fed’s persistent policy of increasing interest rates has resulted in a stronger US dollar and depreciating currencies in emerging economies [2]. When expectations of a decline in the short-term exchange rate rise, the willingness of cross-border capital to invest weakens further, and there is a sudden halt in capital inflows or even capital flight, resulting in a cascade of asset price declines. Under the negative feedback spiral, the wealth of the household sector decreases significantly, corporate solvency declines, and the bank nonperforming loan ratio rises, resulting in heightened instability in the real economy and financial markets. The current complex and volatile international economic environment increases the frequency and unpredictability of cross-border capital flows, which will cause significant volatility on the financial markets of emerging economies [3].

International capital contributes significantly to the growth of emerging economies, but it is also extremely vulnerable to macrofinancial instability. In every financial crisis, we can see unusual global capital fluctuations. Emerging economies’ financial systems are flawed and have insufficient defenses against shocks from global capital flows. Emerging economies are additionally more susceptible to external capital shocks due to internal factors like a high external debt ratio and a mismatch in debt maturities [4]. Considering the current complex global economic context, to investigate how cross-border capital flows affect macroeconomic stability in emerging economies, this paper selects highly speculative international portfolio investment flows as the research object, discusses the effect of international portfolio flows on macrofinancial risk in emerging economies, and further explores how to effectively manage such risk. By revealing the evolution of macrofinancial risks under external shocks and the efficient control tools for identifying the risks of capital flows, it is of great theoretical significance and practical value for emerging economies to identify, manage, and prevent the impact of global capital shocks.

Conclusion

Since the 1990s, the process of economic globalisation has accelerated. Emerging economies have gradually assimilated into the global financial market, growing in popularity with foreign capital that prefers the better growth prospects of emerging economies to advanced economies that have finished industrializing. Although international portfolio capital inflows have helped fuel the market boom, they have also caused some worry about the emerging economies’ financial stability. Emerging economies’ growth is significantly influenced by foreign capital. Open capital accounts in emerging economies make them particularly susceptible to significant shifts in international capital flows, which can either precipitate financial crises there or have a more muted resolution [58]. To explore how international portfolio investment flows affect macrofinancial risk in emerging economies and how to manage this risk effect, this paper develops macrofinancial risk indicators by using contingent claims analysis and the entropy-based TOPSIS method to conduct this study, empirically investigates the short- and long-term effects of international portfolio investment and macrofinancial risk by using a panel distribution lag model, and investigates how capital flow affects the management of macrofinancial risk under capital flow from the standpoint of foreign exchange reserves and capital control by using a panel threshold model.

This paper demonstrates, through an examination of the relationship between macrofinancial risk and international portfolio investment flows, that international portfolio investment flows will increase the macrofinancial risk of emerging economies in the short term but reduce it in the long term. From the perspective of the components of international portfolio investment, high-risk and speculative international speculative capital will have a negative effect on the real economy [51]. Furthermore, this paper examines the management effects of foreign exchange reserves and capital control to mitigate the damage that the risk may cause. This paper argues that foreign exchange reserves can play a positive moderating role in international portfolio flow and macrofinancial risk, but only to a limited extent. Capital controls are tougher, but risk controls work well. Both foreign exchange reserves and capital control have effective risk management capabilities. When equity capital flows frequently, capital control works better at managing macrofinancial risk.

Abstract

This study examined whether foreign investment flow and overconfidence can influence stock price movement among the publicly listed companies in Indonesia. Subsequently, this study determined whether there was any significant difference in the influence of foreign investment flow and overconfidence on stock price movement before and after the COVID-19 lockdown in Indonesia. This study focused on the manufacturing companies listed on the Indonesian Stock Exchange for the 2020 period of which the data were taken in a period of 10 days before and 10 days after the implementation of the COVID-19 lockdown in Indonesia. Using content analysis on secondary data, this study showed that there was a significant difference between the stock prices before and after the COVID-19 lockdown. However, this study showed that foreign investment flow and overconfidence were not the main factors influencing stock price movement before and after the lockdown. The findings indicate that there are other factors that contribute to stock price movement in Indonesia. This study contributes to the existing literature on whether foreign investment flow and overconfidence influence stock price movement in a pandemic world.

Introduction

The COVID-19 pandemic has had an effect not only on the health sector but also on the economic sector all over the world (Ghani et al. 2022). Indonesia is not an exception to this situation. The Central Statistics Agency (BPS) revealed that Indonesia’s economic development in the first quarter of 2020 witnessed a growth of 2.97%, which is a significant change from the 5.02% growth that was recorded in 2019. In Indonesia, the pandemic had a negative impact on the capital market including a change in trading hours on the Indonesian Stock Exchange (BEI) (Kusnandar and Bintari 2020) which, consequently, affected stock price movement. On 8 April 2020, the Combined Stock Price Index (IHSG), which shows the aggregate change in the share price of companies listed on the BEI, showed a decrease in stock prices by around 1.34% at 4704.58. However, upon the government’s announcement of imposing the COVID-19 lockdown, trading hours resumed, causing a steady movement in the stock prices. The existence of unstable stock price movement results exposed investors to increasing risk and uncertainty (Kartika 2008).

Results

5.1. Analyses before COVID-19 Lockdown

Table 3 presents the results of the normality test before the COVID-19 lockdown. The Asymp. Sig. (two-tailed) result was 0.346, which is greater than 0.05. Therefore, it can be concluded that the data were normally distributed, or, in other words, the data passed the normality test.

Table 4 presents the results of the normality test after the COVID-19 lockdown. The table shows the value of Asymp. Sig (two-tailed) to be 0.349, which is greater than 0.05. Therefore, it can be concluded that the data were normally distributed, or, in other words, the data passed the normality test.

Abstract

     This paper empirically examines the effect of inefficient corporate investment on digital transformation, using Chinese listed companies from 2007 to 2019 as a sample, and finds that inefficient investment is not conducive to improving digitalization. We find that the greater the financing pressure on a company, the worse the digital transformation, and financing constraints exacerbate this negative effect. Among state-owned, private and highly digitalized companies, the negative impact of inefficient investment on digital transformation intensifies as the pressure of financing constraints increase. To combat inefficient investment, enterprises should optimize their investment structure, reduce their financing constraints, and improve their risk prevention mechanisms.

Introduction

     The global economy and society are in a critical stage of digital transformation, and the supporting and leading role of the digital economy for industrial development is becoming increasingly important (Wen and Zhong, 2020). As we enter a “new normal” period, where growth rates gradually decrease, the development of the digital economy becomes an important tool for China on its journey to being a high quality, innovative country. With the in-depth implementation of China’s manufacturing sector, network infrastructure and big data strategy, the development of the digital economy has gained momentum, with the overall scale expanding from 18.6 trillion yuan in 2015 to 39.2 trillion yuan in 2022, and the proportion of GDP attributed to the digital economy increasing from 27% to 38.6%, thereby becoming a key driver of stable economic growth. However, these impressive achievements have also raised some concerns. Corporate digital transformation requires investment and high technical standards, leaving some who refuse to transform, as well as those who are ready (Liu et al., 2021). Therefore, understanding the potential value of digital transformation is an issue of great concern to both academia research and policy makers.

Conclusions and recommendations

     This paper takes Chinese listed companies from 2007 to 2019 as a research sample, and empirically tests the impact of investment efficiency on corporate digital development, and the mediating effect of financing constraints, and the conclusions obtained are as follows:

1 The results show that inefficient investment is detrimental to digitalization; there is a positive relationship between investment efficiency and digitalization, and the higher the financing pressure on a company, the more unfavorable the digital transformation, and financing constraints exacerbates this negative effect.

2 The financing constraint has a more significantly negative moderating effect on the relationship between inefficient investment and digitization levels for state-owned firms, private firms, and firms with higher digitization levels.

3 Companies can alleviate financing pressure to a certain extent through inefficient investment, but it is still fundamentally detrimental to their digital transformation.

Abstract

     Trade in digital goods and services have witnessed increasing growth in recent years, accompanied by a corresponding increase in data flows across national boundaries. At the same time, governments around the world have enacted data policies that restrict such cross border data flows in their effort to claim sovereignty over data generated from within their countries. However, scholars have long proclaimed that any restrictions to the Internet and associated digital trade will have serious economic consequences. Given this context, we analyze the impact of data policies that impose restrictions on digital trade, specifically on cross border data flows. We construct Market Data Restrictions Index (MDRI), that measures the data restrictions faced by an exporting country from their trade partners. We use a variation of random effect model on a panel data set consisting of 60 countries that contribute to more than 50 percent of IT services export during the period 2006–2017. The results indicate that apart from variables such as Foreign Direct Investment, and Service Value Added, the MDRI of partner countries has a moderate negative effect on IT services export. If countries move from liberal policies to stringent data restrictions, the economies of the country that exports its ICT services to these partner countries is affected substantially. Hence government regulators shall be cautious in imposing stringent data restrictions as it affects global digital trade.

Introduction

     Global flows of goods and services that contribute to international trade have reached US$25 trillion as of 2019 (UNCTAD, 2020). Over the last two decades, financial flows including Foreign Direct Investment (FDI) have become significant across countries (UNCTAD, 2020). Recently there is a growing interest amongst researchers to look at digital information flows as another factor of importance in international trade and consequently on growth of the economies (MGI, 2014; MGI, 2016). Between 2004 and 2014, it is estimated that digital trade increased world GDP by more than 10 per cent, equivalent to US$7.8 trillion (Meltzer & Lovelock, 2018). International digital trade that comprises of import and export of digital goods and services, involves significant data flows across national borders.

     Most of the data flows of the last decade were primarily attributable to Information and Communication Technology (ICT) services.IT outsourcing firms, especially in countries such as India, benefitted due to free flow of cross border data, thereby providing ICT services to business customers located mainly in the U.S. and Europe. For example, India – one of the world’s leading ICT outsourcing destinations, witnessed exports of ICT services worth US$105 billion in 2019, with an annual compounded growth rate of about 10.23 percent since 2010. Ubiquitous Internet connectivity, digitization of business processes, and large availability of skilled technical manpower has contributed to the growth of ICT outsourcing services in India and has established the country firmly in the global digital supply chain (Carmel & Tjia, 2005; Edwards & Sridhar, 2005).

Conclusions and future research directions

     This paper makes two unique contributions to the literature on impact of data related policies on trade, more specifically digital services exports. One, the paper has constructed an index to measure the data policy restrictions a country faces in the market using the restrictions on data cluster of the existing DTRI index. Two, the paper then estimates the impact of such restrictions on the digital services exports of a country along with the traditional variables that have been used in prior literature. The results indicate a negative impact of data policy restrictions on digital services exports.

     Since DTRI as a measure of restrictions on digital trade that is time invariant, further research into the impact of a time varying measure of data policy restrictions would add more rigor to the understanding the impact of data restrictions on trade. Furthermore, trade being a bilateral process, regulations imposed by both the trading partners have a bearing on the volume of trade. As such it would be valuable to understand such interactions.

Abstract

1. Introduction

2. R&D Accounting in China

3. Theoretical Analysis and Hypothesis Development

4. Research Methodology

5. Empirical Tests and Analysis of Results

6. Conclusions

Acknowledgments

References

Abstract

     This study investigates the relationship between earnings management (EM) and capitalization of research and development (R&D) expenditure from the perspective of major shareholders expropriation, using Modified Jones Model and Bidirectional Fixed Effect Model for the period 2009–2018. And the study further discusses the moderating effect of ownership concentration on the relationship between earnings management (EM) and capitalization of research and development (R&D) expenditure. Our results confirm that the level of accrued earnings management (EM) presents a positive impact on capitalization of research and development (R&D) expenditure. The effect of the shareholding ratio of the biggest shareholder on the relationship between accrued EM and capitalization of R&D expenditure is inverted U-shape.

Introduction

     In corporate governance, with the increasing prevalence of high ownership concentration, the analysis of the role of major shareholders is gaining attractive. The main contradiction of corporate governance has also changed from the principal-agent issue between shareholders and managers to the conflict between major and minority shareholders. The major shareholders have the capability and inclination to make use of the advantage to empty the listed company and encroach on the interests of the company, thus harming the interests of the minority shareholders. The development of China’s capital market is relatively backward, and the special background results in a “one dominant share” phenomenon of enterprises in China. Shleifer and Vishny (1997) found that in countries where investor protection is insufficient, major shareholders tend to seize the interests of minority shareholders. In generally, the encroachment of major shareholders is mainly due to three reasons: high level of ownership concentration, insufficient supervision and restriction on the behavior of major shareholders, and inadequate legal protection for investors. The main ways of major shareholders’ expropriation include the direct and indirect occupation of resources, such as earnings management (EM), related party transactions and dividend distribution, etc. Xu, Huang, and Wang (2014) believes that the absolute right of controlling shareholders improves the probability of financial fraud and earnings management (EM). LaPorta et al. (2000) found that major shareholders in the absolute controlling position would obtain private benefits through related party transactions, accrued EM, and other ways to realize the interest expropriation of minority shareholders. Morck, Shleifer, and Vishny (1988) argued that the inconsistent interests of major shareholders and minority shareholders led to conflicts between them. In the absence of an effective supervision mechanism, major shareholders would use their control right over the company for their personal gains, which would harm the interests of minority shareholders.

Conclusions

     The expropriation of major shareholder has a negative effect on the quality of accounting information which will affect the decision making of users, but also restricts the healthy development of the capital market. Recently, the capitalization of R&D expenditure has been used as a means of major shareholder expropriation. Therefore, it is worthy to examine the relationship between accrued EM and capitalization of R&D expenditure from the perspective of major shareholder expropriation. And we also proposed that ownership concentration plays a moderating effect role in the study. The empirical analyses show that: (1) accrued EM has a positive effect on the amount of capitalized development expenditures. (2) the effect of ownership concentration is inverted U-shape in the relationship between accrued EM and capitalization of R&D expenditure. What’s more, endogeneity test and robustness test were carried out in this paper to verify the reliability of the finding.

     The policy implications run as follows. After the accounting standard of Intangible assets changed in 2006, China’s R&D investments have enjoyed rapid and vigorous development. Thus, the favorable policy for R&D investments creates a positive environment for the development of enterprise innovation. However, we should mention that the capitalization of R&D has not received enough attention in the accounting literature. Irrational capitalization of R&D expenditure is becoming a way for the management to manipulate the earnings and the main reason for that is the current accounting standards are not clear on the division of the research stage and the development stage, as well as the capitalization amount. Over-capitalization of R&D expenditures can lead to overinvestment in continuing projects and destroy the firm value. Therefore, the standard-setting body should improve and refine the existing provisions of R&D expenditure and reduce the space for earnings management through capitalization of R&D expenditure.

Abstract

1 Introduction

2 FIL Background

3 Highlights of the FIL

4 The Road Ahead: Implementation of the FIL

5 Conclusion: Towards a New Era of the Foreign Investment Law Regime

References

Abstract

     China’s foreign investment law regime has experienced significant changes in recent years. A milestone came with the passing of the Foreign Investment Law (FIL) in 2019, replacing the laws and regulations that had governed foreign investment in China for four decades. This article first undertakes a political economic analysis to determine the relevance of internal and external factors contributing to the changes. It then discusses the key characteristics of the FIL and reveals how it is designed to create a liberal, stable, fair, transparent and accountable regime to promote and protect foreign investment. Although the passage of the FIL ushered in a new era of foreign investment in China, many important issues remain unresolved and further actions must be taken to ensure its smooth implementation. To support the sustained development of its foreign investment regime, China must address existing laws and regulations that are incompatible with the new regime, clarify key issues that the new law fails to address, issue clearer guidance on national security, shorten its ‘negative list’, promote opening up and enhance regulatory transparency.

Introduction

     On 15 March 2019, China passed the Foreign Investment Law (FIL)Footnote1 that demonstrated its commitment to providing a level playing field for foreign investors. Entering into force on 1 January 2020, together with its corresponding Implementation Regulation, the FIL put an end to the three primary laws that had governed foreign investment in China for four decades, namely the Sino-Foreign Equity Joint Venture Law, the Sino-Foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprises Law (together, the Three Laws). With unified provisions on market access, investment promotion, investment protection and foreign investment management, the FIL represented a milestone in China’s endeavour to open up to foreign investment through the rule of law. The law was promulgated to address international concerns, to summarise the domestic experience and to improve the business environment. In the face of unprecedented uncertainties and rising protectionism in the global economy, the law was intended to create a ‘golden age’ for foreign investors in China.Footnote2 Against this backdrop, this article first presents an overview of the development of China’s foreign investment law regime, delving into the economic, political and external factors that led to the enactment of the FIL. It then highlights the main features of the FIL. The third part of the article summarises the problems with the law that remain to be resolved and the measures required for its smooth implementation. Specifically, to support the sustained development of its new foreign investment regime, China must revise existing laws and regulations that are incompatible with the FIL, clarify key issues that the FIL fails to address, issue detailed guidance on national security, shorten the ‘negative list’ to promote opening up and enhance the transparency of the regulatory system.

Conclusion: Towards a New Era of the Foreign Investment Law Regime

     With the adoption and implementation of the FIL, the laws and regulations that have governed China over the last four decades fall away. The FIL establishes the basic framework for a new type of foreign investment legal regime and unifies provisions on market access, investment promotion, investment protection and investment management. As a landmark piece of legislation in China’s foreign investment law regime, the FIL is underpinned by a combination of internal experience and international practice. It provides a stronger legal guarantee of further opening up and the active and effective utilisation of foreign investment. With the adoption of the FIL, China is entering a new era of foreign investment wherein a level playing field will be created and a more stable, fair and transparent regime will be established.

Abstract

1. Introduction

2. Literature review

3. Methodology

4. Results

5. Discussion

6. Summary and conclusion

References

Abstract

Purpose
This study examines the relationship between investor cognitive bias, investor intuitive attributes and investment decision quality in commercial real estate in Uganda.

Design/methodology/approach
A cross-sectional research survey was used in this study, and data were collected from 200 investors of commercial real estate in Uganda using a structured questionnaire. Hierarchical regression analysis was used to test the hypotheses derived under this study.

Findings
The results indicate that investor cognitive bias and investor intuitive attributes are positive and significant determinants of investment decision quality in commercial real estate. In addition, the two components of Investor cognitive bias (framing variation and cognitive heuristics) are positive and significant determinants of investment decision quality, whereas mental accounting is a negative and significant determinant of investment decision quality. For investor intuitive attributes, confidence degree and loss aversion are positive and significant determinants of investment decision quality, whereas herding behavior is a negative and significant determinant of investment decision quality in commercial real estate in Uganda.

Practical implications
For practitioners in commercial real estate sector should emphasize independent evaluation of investment opportunities (framing variation), simplify information regarding investments (Cognitive heuristics), believe in own abilities (Confidence degree), be risk averse (loss aversion) and avoid making decisions based on subjective visual mind (mental accounting) and group think/herding in order to make quality investment decisions. For policymakers, the study has illuminated factors such as provision of reliable information that ought to be taken into account when promulgating policies for regulation of the commercial real estate sector. This will help investors to come up with investment decisions which are plausible.

Originality/value
Few studies have focused on investor cognitive bias and investor intuitive attributes on investment decision quality in commercial real estate. This study is the first to examine the relationship, especially in the commercial real estate sector in a developing country like Uganda.

1. Introduction

Commercial Real Estates (CRE) are properties developed and/or invested in specifically and exclusively for generating rental income and/or appreciation in value to realize capital gains upon disposal, rather than as a living space for the owner of the property. When developed for rental purposes, the tenants may use CREs for residential purposes (e.g. apartments), office/work space, shopping malls, industrial parks, warehouses and hotels. Globally, investments in commercial real estate have shown diverse trends. Bollinger and Pagliari (2019) argue that most commercial real estate developers opt for diversified portfolios that bring appropriate yields over time. The recent global outlook report indicates that the USA commercial real estate investment market registered a downward trend as compared to the Asia Pacific and European real estate investment markets, which earned 6% and 8% returns, respectively (Rossi and Vismara, 2018).

Abstract

Introduction

Review of literature

Methodology

Descriptive analysis

Correlation analysis

Conclusion and policy implications

Declarations

References

Abstract

     This study examines to what extent foreign private investment (FPI) affects the clean industrial environment and sustainable economic growth through developed countries investment in China. Moreover, this study investigates an association among FPI, CO2 emission, energy consumption, trade openness, and sustainable economic growth. This study uses random effects and generalized least squares (GLS) and panel VAR estimators for data analysis. The results show that China’s economy has a great positive impact on the location and choice of investment in domestic markets in emerging countries and developed countries. In addition, investment in emerging and developed economies has increased the contribution of domestic enterprises and environmental sustainability to the national economy. The further results show that foreign private investment and gross domestic investment have positive impact on sustainable economic growth.

Introduction

     The fundamental objective of the economies (with high GDP per capita) is to accomplish practical fnancial development and government assistance of the economy with mechanical advancement (clean ecological-based advances), improvement of natural strategies to moderate the level CO2 discharge (Yu et al 2020). According to Panayotou (1993), economies (after reached at highest level of income per capita) want to move from worse environmental condition to clean environment to get sustainable economic growth. The three stages of environmental Kuznets curve (EKC) premise shows that when economy moving from traditional agricultural sector to industrial sector then the ratio of environmental degradation is high at stage frst. Finally, the EKC scheme shows that when the economy moves toward administrations area they requests for clean climate suggested that the scale, specialized, and synthesis impacts are the primary parts of the premises of the altered U-molded EKC. The scale impact is identifed with the pre-industrialization stage where expands the degree of pay prompts increment the degree of ecological contamination, in this stage modern area is wasteful and fundamentally dirtying the climate.

Conclusion and policy implications

     It is concluded from the study that the foreign investment has a positive impact on economic growth in short run and long run, respectively. Perhaps it might be because of good economic policies from government of China or the amount of investment increases over time. FPI has also some moral hazards that receipt country usually dependent on investment, aid and donor countries can exploit them by putting some restrictions or harsh terms. So countries should rely on their own resources and chose those policies which provide favors in growth level.

     Moreover, foreign direct investment and gross domestic investment have positive impact in short run and long run, respectively. Moreover, the policies should encourage which increases investment from foreign countries and it has more impact on growth level rather than investment because when foreign direct investment is linked with capital utilization, research and development, technological improvements, and easy market access it increases growth.

Abstract

1. Introduction

2. Background

3. Theoretical literature review

4. Empirical literature review and hypotheses development

5. Research design

6. Empirical results and discussion

7. Summary and conclusion

Research involving human participants and/or animals

Authors’ contribution

Data availability statement

References

Abstract

     Market capitalization and intellectual capital can be understood as two main that can play a dynamic role in multiple organizational decisions. Given that, the current study examines the role of market capitalization and intellectual capital in determining corporate investment decisions. In our empirical analysis, we use 10 years of financial information, from 2010 to 2019, for nonfinancial publicly listed corporations in three economies: China, India, and Pakistan. In our regression estimation, this study employs the panel-EGLS (estimated generalized least squares) and two-step system generalized method of moments techniques to address the problems of heteroskedasticity and endogeneity. The statistical analysis first reveals the positive significant effect of market capitalization on investment decisions because of the availability of sufficient funds for investment. It then substantiates the significant role of human capital, structural capital, and capital employed efficiency in protecting industrial investment. The empirical findings offer policy implications on how market capitalization (MC) and intellectual capital (IC) promote investment decisions.

Introduction

     Because of the high probability of investment failure, firms require strong motivation to invest in long-term projects (Cholakova & Clarysse, 2015). Firm managers derive this motivation from different factors, including financial and nonfinancial factors. These factors reduce the systemic risk of investment and lead to substantially more investment (Chaney et al., 2012). Among others, the volume of market capitalization by firms is a vital financial factor that allows them to deliberately make some investments (Armstrong & Vashishtha, 2012). Similarly, firms that are rich in intellectual capital can make more investment because they have fewer problems with information asymmetry, maximum investment efficiency, and production cost efficiency (Oppong & Pattanayak, 2019). This description eventually led to maximum investment for obtaining physical assets in the form of property, plant, and equipment (PPE), commonly called capital investment. Recognizing the importance of market capitalization and intellectual capital in the intensification of industrial investment, this study tries to answer the following research questions:

•Does market capitalization boost the investment confidence of corporate managers?

•How does intellectual capital promote managerial confidence in capital investment?

Summary and conclusion

     Firms with a high market share and more intellectual capital are more likely than other firms to employ dynamic investment strategies. These two kinds of assets—tangible (market capitalization) and intangible (intellectual capital) assets—on the balance sheets of a company can augment physical investment. Given that, our study determines the impact of market capitalization and intellectual capital on corporate decisions regarding physical investment. The empirical analysis is based on ten years of annual data on nonfinancial publicly listed firms in China, India, and Pakistan. The statistical results of panel-EGLS and system-GMM models reveal the significant and positive impact of market capitalization on industrial investment. Firms with a higher market share are more confident about physical investment because they have larger financial reserves and the capacity to withstand financial shocks. The empirical analysis then implies the positive role of all three components of intellectual capital—HCE, SCE, and capital employed efficiency—in determining industrial investment. These factors enable an enterprise to confidently engage in investment because of the availability of knowledge workers, efficiency in internal business operations, and maximum utilization capacity of their internal resources. These factors might reduce investment inefficiency and enable firms to expand the volume of investment. In summary, the empirical results confirm all the hypotheses proposed (H1, H2a, H2b, H2c), and the objective of the research is achieved. The empirical findings are consistent even after heteroskedasticity and endogeneity issues are addressed, and several firm-level and country-specific variables are controlled for.

Abstract

     How entrepreneurial orientation facilitates the identification of new opportunities in newly established ventures in emerging economies remains largely unexplored. Approaching entrepreneurial orientation as a second order latent construct, we examined the mediating role of opportunity recognition on new venture performance. Using a survey data from 316 SMEs, the results of the analysis in SmartPLS highlights that entrepreneurial orientation indirectly contributes to the performance of new ventures, where the relationship is partially mediated by opportunity recognition. The findings show that firms with high entrepreneurial orientation can identify and exploit new opportunities as well as enjoy superior performance.

Introduction

     Many emerging economies are confronted with immense challenges such as uncertain markets (Czakon et al. 2020; Yu et al. 2020), globalization (Fatima 2017), new market systems (Alvarez et al. 2015) and intense competition (Chari and Banalieva 2015). As compared to developed markets, new ventures suffer from a higher failure ratio due to institutional challenges. For instance, Wang and Chen (2010) argue that in China, more than 70% of newly established ventures fail in the first year. Another study by Parnell et al. (2015) reports 67% failure ratio of Chinese ventures in the first year while 85% in the first 10 years. Anwar and Ali Shah (2020) report that more than 50% of new ventures in Pakistan do not survive in the long run. These institutional challenges impinge on the growth of small and medium enterprises (SMEs) largely due to the liability of newness and smallness, which limits their ability to adapt rapidly to changing business conditions (Yu et al. 2020). Consequently, the ability of these firms to exploit new opportunities in order to survive the competition is impeded (Zhou and Li 2010; Chen et al. 2020). Thus, bringing to the fore the issue of performance and survival of newly established SMEs in emerging economies (Anwar and Ali Shah 2020; Yu et al. 2020; Guo et al. 2019a).

Conclusion

     Our research examined and tested predictions about the mediating role of opportunity recognition between EO and new venture performance in emerging markets. The study also examined the effect of opportunity recognition on venture performance. Even though we found empirical support for the derived hypotheses, this line of inquiry also opens an opportunity for theory building regarding which dimension of EO is more appropriate in opportunity recognition concerning newly born enterprises in emerging market settings.