L25 - Firm Performance: Size, Diversification, and ScopeReturn

Using a macro-level dataset covering 173 countries from 2000 to 2020, this study is the first attempt to examine how income diversification and market concentration are related to bank stability. Firstly, we document that bank stability is positively related to revenue diversification, suggesting that banks are more stable when they are more engaged in non-traditional activities. Secondly, market concentration is positively associated with bank stability, in line with the concentration-stability hypothesis that banks in a highly concentrated banking system are more likely to be more stable. Thirdly, we show that market concentration modifies the link between revenue diversification and bank stability. Specifically, it is shown that diversified banks are more stable in a more concentrated environment compared to those on a less concentrated market. These results are robust to multiple regression specifications with different proxies for bank stability and income diversification.

The current situation of slower economic growth is leading to a more difficult access to funds and unpredictable payment behaviour of customers, which predetermines growing importance of working capital management. The aim of the present article is to examine the effects of working capital investment and its components (inventories, accounts receivable, accounts payable and cash) on the firm's performance in the case of non-cyclical and cyclical industries in the Czech Republic. The underlying dataset comprises corporate data of 293 firms from 2010 to 2018. The calculations reveal that both industries applied over the period a very similar conservative working capital management strategy consisting in increasing working capital investment accompanied by simultaneous development of all its components. The results also indicate dissimilarities in the importance of working capital components with respect to the firm's performance. Cash seems to be the most important component, contrary to inventories, which are insignificant jointly for both industries. Accounts receivable and accounts payable are significant only for cyclical industry firms.

The relationship between R&D expenditures and firm growth is examined for a cross-country firm-level dataset for the EU countries in the period from 1989 to 2019. A panel dynamic average treatment effect is estimated using a panel time-varying dynamic difference-in-differences model. The methodology can be counted as novel. The results show a positive and significant relationship between R&D and firm growth within the first five years of R&D investment in the 22 EU countries, over 700 firms and 30 years. The main novelty of the present study comes from examining the time-varying effect of R&D expenditures on firm growth for manufacturing firms in EU countries.

We investigate how increases in minimum wage affect various firm-level characteristics. We study firm-level data from Poland, where the minimum wage experienced a large and persistent increase in 2008 and 2009. We show that firms which were more exposed to the minimum wage increase faced higher increases in total labour costs and larger reductions in profitability. Intuitively, higher total labour costs driven by higher minimum wages directly reduce firm profits in the absence of price adjustments. We also show that the sharp increases in the minimum wage increased capital and decreased overall labour productivity and employment. The impact of policy is statistically significant only on capital.

This paper contributes to the current literature dealing with drivers of bank business model changes. We analyse the relationship between fee and commission income share and banks' performance in terms of profitability, risk and risk-adjusted profitability in the European Union. We applied the System Generalized Method of Moments to a unique data set of 329 EU banks in the period 2005-2014, which resulted in three key findings. First, we did not find any diversification benefits by increasing the fee income share. Therefore, we can conclude that the increase in fee income share observed in recent years in EU banks was driven mainly by external factors, such as increased competition, rather than by internal reasons. Second, higher reliance on equity financing and better quality of provided loans enhance banks' performance. Third, bank business strategies and macroeconomic factors are crucial determinants of banks' performance.

This paper analyses the monopolist's production and pricing decisions on two vertically diffe-rentiated versions of a product in the presence of network externality. We show that offering only the higher-quality version of the product is the optimal strategy when negative externality exists and the utility from joint purchase is not large. If both versions are provided, the monopolist will charge a monopoly price for each version to induce separate purchases if these two versions are too close substitutes. Moreover, in the equilibrium with joint purchases, with an increase in externality or the utility from a joint purchase, the prices of both versions increase. In addition, with an in-crease in network externality, the equilibrium region for separate purchases first increases and then decreases.

This study explores whether companies´ experience benefits when the firm's CEO and owner are both women. It employs data from the 2009-2014 World Bank Enterprise Surveys (WBES) to measure firms' performance through growth in sales and productivity. Potential endogeneity was corrected by using the UN Gender Development Index and the average fertility rate as they comply with the exclusion restrictions. The paper uses the Control Function method with a Probit first stage estimation and an OLS main equation. The findings suggest that a female owner strengthens the female CEO's business skills and leads to better firm performance than when the CEO is a woman and the owner is a man.

This paper empirically assesses the financial performance of Czech credit unions in relation to other European cooperative banks in terms of their profitability and stability. We created a unique dataset of 283 cooperative banks from 15 European countries in the period 2006-2013. Using the system GMM and alternative panel data methods, we reveal worse performance of Czech credit unions in terms of both profitability and stability compared to their European peers. We also argue that big credit unions in the Czech Republic have assumed a non-sustainable business model depending on excessive risk taking while enjoying implicit subsidy via deposit insurance. In conclusion, we argue that under recent capital management policies, big Czech credit unions will likely face serious financial problems in coming years.

Business failure prediction is an important issue in corporate finance. Different prediction models are proposed by financial theory and are often used in practice. Their application is effortless, selecting only few key inputs with the greatest informative power from the large list of possible indicators. Our paper identifies the financial distress predictors for 5 post-communist countries (Bulgaria, Croatia, the Czech Republic, Hungary and Romania) based on information collected from the Amadeus database for the period 2011-2013 using CHAID decision trees and neural networks. We propose a short list of indicators, which can offer a synthetic perspective on corporate distress risk, adapted for these countries. The best prediction models are substantially different from country to country: in the Czech Republic, Hungary and Romania the flow-approach indicators perform better, while in Bulgaria and Croatia - the stock-approach indicators. The results suggest that the extrapolation of such models from one country to another should be made cautiously. One interesting finding is the presence of the ratios per employee as predictors of financial distress.

The paper interprets factors of corporate performance identified by means of statistical pattern recognition techniques. A Dependency-Aware Feature algorithm with non-linear regression model ranked 74 potential factors of corporate performance according to their contribution to corporate performance prediction. This paper brings consecutive statistical analyses, which interpret the effects of Strategy, FDI, Share of Export, Top Management Performance Pay, and Workers' Performance Pay on corporate performance. Furthermore, the analyses reveal strong mutual moderating interdependencies. On the national scale, the paper brings evidence that the companies from the industries researched can use the stational techniques to learn about corporate performance factors. On a global scale, the paper introduces the contribution of Dependency-Aware Feature selection in the field of management and confirms the need for a multidimensional contingency approach in researching corporate performance. The results are based on a sample of 432 private limited or joint stock companies located in the Czech Republic operating in the manufacturing and construction industries and employing 50 or more people.

In this paper, we analyse the key determinants of bank fee and commission income in the European Union with a special emphasis on market concentration. On a sample of 258 EU banks during the 2007–2014 period, we apply System Generalized Method of Moments. First, we argue that the banks facing higher competition tend to expand more aggressively into non-traditional activities, and therefore they report a higher share of fee income in total income. Second, we found that a higher equity to assets ratio is related with higher shares of fee income since the bank needs more capital to prevent or manage the potential risks of the non-traditional activities. Finally, a high deposits to assets ratio tends to increase the fee income share, which may be possibly attributed to relatively high switching costs and to close depositor-bank relationship in the EU banks.

The paper deals with the phenomenon of foreign bank ownership, which is prevalent in the countries of Central, Eastern and South Eastern European region as well as in New Zealand. Using a sample of 17 countries and filtering out more than 140 domestically operating foreign-owned banks, we examine the determinants of their performance in relation to host country conditions over the period of seven years between 2005 and 2011. Based on our knowledge, we use the largest data set in this respect compared to other researchers. Using system GMM and fixed effects models, we reveal that macroeconomic fundamentals of the host country affect the foreign-owned banks' performance but do not suffice in explaining it fully. This result points out that sound banks with higher operational efficiency operating in growing economies with low inflation rate tend to perform better than their peers.

The primary aim of the paper is an analysis of the relationships between growth, innovation and subsidies based on a large firm-level data set in the period 2004-2007. The novelty of the approach lies in linking data from financial statements with data from innovation surveys of the Czech Statistical. Innovation activities of firms are modelled as a four stage model (CDM) which allows studying several interrelated questions while controlling for simultaneity and for causality problem. In the first two stages determinants of decision to innovate and consequent innovation investment are separated. In the third stage innovation input (R&D investment) is linked to innovation output, and finally, in the fourth stage it is determined how the productivity of firm is related to its innovation activities. Our analysis proved that innovation input significantly increases innovation output, with increasing firm's size, however, ceteris paribus, the innovation output is decreasing. This means that bigger firms are less efficient in transforming the innovation input into output. More importantly, our analysis shows that access to subsidies has significant, yet negative influence on innovation output. This result may throw a shadow on the efficiency of supported firms and have some implications for competition policy.

This article presents a meta-regression analysis of 32 studies on frontier efficiency measurement in banking, focusing on the sensitivity of the reported estimates to the methodological design. Our findings suggest that study design is crucial for the resulting scores. The differences between the scores estimated using parametric and non-parametric approaches arise when the Fourierflexible functional form is used since this functional form yields lower scores. Generally, the higher the number of observations, the higher is the average estimated efficiency. The removal of scale effects using equity capital increases the profit efficiency but it is insignificant for other scores. The efficiency analysis should distinguish the commercial banking from other bank types because the former tends to deliver lower efficiency scores.

The goal of this article is to determine whether low capital intensive firms, characterised by low productivity and low level of R&D activities that operate in technologically intensive branches of the Czech manufacturing industry, tend to be localised in economically lagging regions which are attractive for costs seeking FDI. We wanted to determine to the Czech regions that are more threatened by delocalisation of manufacturing activities. The assessment of companies' localisation stability is based on 3 economic indicators representing internal keep-factors of delocalisation - capital intensity, complexity of value chain, and sophistication of production processes. We did not confirm the hypothesis on concentration of footloose firms in economically lagging districts with high unemployment and accessibility of investment incentives. These firms, which are considered to be the most predisposed for delocalisation, are geographically dispersed. Localisation of technologically intensive branches corresponds neither to the settlement hierarchy nor to the economic performance of districts. Regional differences of indicators of localisation stability exhibit a strong path dependency effect.