Determinants of Firm Performance in Developing Countries

A special issue of Economies (ISSN 2227-7099).

Deadline for manuscript submissions: closed (1 March 2023) | Viewed by 45382

Special Issue Editor


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Guest Editor
Division of International Banking and Finance Studies, A.R. Sanchez, Jr. School of Business, 5001 University Blvd, Texas A&M International University, Laredo, TX 78041, USA
Interests: development economics; political economy; corruption; institutions; Africa; privatization; competition; firm surveys
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Special Issue Information

Dear Colleagues,

Improving total factor productivity is vital if governments in developing countries want to improve living standards, reduce inequality, create jobs, and boost growth. Ultimately, however, decisions of private sector firms and entrepreneurs drive productivity growth. If firms fail to adopt new technologies and invest in their human and physical capital, developing country governments will not be able to reduce poverty and grow their economies. This does not mean, however, that the government plays no role in this process. Firms will only invest when the business environment is favorable, i.e., the regulatory and institutional environment is strong, infrastructure and financing are available, tax rates and administration are not too burdensome, and government bureaucrats are honest and competent. The goal of this Special Issue is to examine the barriers that prevent firms from improving their performance. Papers can look at internal constraints to firm performance or government policies that create external constraints.

Dr. George R.G. Clarke
Guest Editor

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Keywords

  • Total factor productivity
  • Labor productivity
  • Technology adoption
  • Investment climate
  • Business environment
  • Institutional environment
  • Corporate governance

Published Papers (12 papers)

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Research

19 pages, 697 KiB  
Article
Business Intelligence (BI) in Firm Performance: Role of Big Data Analytics and Blockchain Technology
by Mladen Pancić, Dražen Ćućić and Hrvoje Serdarušić
Economies 2023, 11(3), 99; https://doi.org/10.3390/economies11030099 - 21 Mar 2023
Cited by 3 | Viewed by 7015
Abstract
The analysis of the causes or drivers of the adoption of big data analytics and blockchain and their subsequent influence on firm performance has become a significant need as a direct result of the rapidly expanding popularity of business intelligence. The purpose of [...] Read more.
The analysis of the causes or drivers of the adoption of big data analytics and blockchain and their subsequent influence on firm performance has become a significant need as a direct result of the rapidly expanding popularity of business intelligence. The purpose of this research is to present a model that investigates the direct and indirect influence of business intelligence on firm performance through the mediating roles of the adoption of big data analytics and blockchain. The analysis is based on data collected from a representative sample of 387 employees from 12 Information technology (IT) firms operating in Croatia. The study investigates these connections using a structural equation modeling. The findings showed that business intelligence has a direct and significant influence on firm performance. In addition, business intelligence significantly and positively influenced the adoption of big data analytics and blockchain and, in turn, firm performance. Additionally, the adoption of big data analytics and blockchain technology signified and positively mediated the relationship between business intelligence and firm performance. Both the mediations were partial. Finally, the study also provides managerial implications, limitations and future directions. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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17 pages, 442 KiB  
Article
Green Governance and Sustainability Report Quality: The Moderating Role of Sustainability Commitment in ASEAN Countries
by Chairina Chairina and Bambang Tjahjadi
Economies 2023, 11(1), 27; https://doi.org/10.3390/economies11010027 - 12 Jan 2023
Cited by 4 | Viewed by 5319
Abstract
This study aims to examine the role of green governance in the quality of sustainability reports. We also examine the moderating role of sustainability commitment between green governance and the quality of sustainability reports. This research is a quantitative study by using unbalanced [...] Read more.
This study aims to examine the role of green governance in the quality of sustainability reports. We also examine the moderating role of sustainability commitment between green governance and the quality of sustainability reports. This research is a quantitative study by using unbalanced data panels. The study retrieves the samples from the companies listed on the ASEAN Stock Exchange that published sustainability reports from 2015 to 2019. The research finding shows that the board’s independence, board diversity, and sustainability commitment are significantly associated with the quality sustainability reports. Moreover, the board size indicates a low effect on the reliability and the chief sustainability officer on the conciseness of sustainability reports. Meanwhile, it has not been possible to prove that the presence of sustainability committee can lead effect on the report quality. The sustainability commitment also moderates female directors and the quality of sustainability reports. Other findings are obtained from the company’s characteristics where company size and type of industry are positively correlated with the quality of sustainability reports. This study has several limitations. First, some companies that are under observation spend money on social costs, but the amounts are not clearly disclosed. Second, this research only focuses on three quality aspects: conciseness, clarity, and reliability. These research findings contribute to the following scopes. First, how green governance and commitment to sustainability help improve the quality of corporate reporting. Second, the investors should invest in companies that apply good green governance and sustainability commitment. Third, companies with strong commitments to sustainability and good corporate governance are competitive resources that support businesses in growing, attracting more investment, and earning stakeholders’ trust. Lastly, this research also contributes to the agency and the resource-based view theories related to the green governance and the sustainability reports’ quality of ASEAN countries. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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18 pages, 1156 KiB  
Article
Saudi Green Banks and Stock Return Volatility: GLE Algorithm and Neural Network Models
by Hamzeh F. Assous
Economies 2022, 10(10), 242; https://doi.org/10.3390/economies10100242 - 4 Oct 2022
Cited by 4 | Viewed by 1779
Abstract
This study investigates the effects of ESG factors on stock return volatility from 2012 to 2020 using linear regression, GLE algorithm, and neural network models. This paper used the ESG factors and main control variables (ROA, EPS, and year) as independent variables. The [...] Read more.
This study investigates the effects of ESG factors on stock return volatility from 2012 to 2020 using linear regression, GLE algorithm, and neural network models. This paper used the ESG factors and main control variables (ROA, EPS, and year) as independent variables. The regression model results showed that both year and E scores significantly positively affected Saudi banks’ stock return volatility. However, the S score and ROA significantly negatively impacted the volatility. The results indicated that the prediction models were more efficient in analysing the volatility and building an accurate prediction model using all independent variables. The results of the GLE algorithm model showed that the level of importance of the variables was sorted from highest to least significant as follows: S score, ROA, E score, and then G score. While the result of the neural network was sorted as ROA, ROE, and EPS, then the E score, S score, and G score factors all had the same minor importance in predicting the stock return volatility. Linear regression and prediction models indicated that the S score was the most crucial variable in predicting stock return volatility. Both policymakers and investors can benefit from our findings. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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16 pages, 486 KiB  
Article
Determinants of Sustainable Growth of SMEs in Developing Countries: The Case of Ethiopia
by Gemechu Abdissa, Abebe Ayalew, Anna Dunay and Csaba Bálint Illés
Economies 2022, 10(8), 189; https://doi.org/10.3390/economies10080189 - 1 Aug 2022
Cited by 4 | Viewed by 3879
Abstract
Small and medium-sized businesses (SMEs) played a significant role in domestic employment and inclusive GDP in developing countries such as Ethiopia. Accordingly, the purpose of this study is to investigate the determinants of sustainable growth of SMEs in developing countries, notably in Ethiopia. [...] Read more.
Small and medium-sized businesses (SMEs) played a significant role in domestic employment and inclusive GDP in developing countries such as Ethiopia. Accordingly, the purpose of this study is to investigate the determinants of sustainable growth of SMEs in developing countries, notably in Ethiopia. To achieve the objectives of this study, both descriptive and explanatory research designs were used. In addition to this, primary data was collected from SMEs engaged in service, manufacturing, trade, construction, and urban agriculture. The sampling techniques used for this study is the stratified simple random sampling technique in which 194 employees of SMEs were drawn as a sample size for this study. Moreover, multiple linear regression models were used with the Statistical Package for the Social Sciences (SPSS) version 23 software as the data analysis tool. According to the study’s findings, crucial issues such as the coronavirus and political uncertainty in Ethiopia, which have allowed for widespread corruption, are now harming the growth of SMEs. According to the findings, political instability, corruption, and COVID-19 are now having a substantial effect on the growth of SMEs in Ethiopia. These concerns have serious consequences for the long-term sustainability of Ethiopian SMEs. Hence, the study strongly advocates for sequential policy reform in the region, as well as a review of current policies aimed at ensuring effective corruption control in the region and bringing political stability to the region, particularly in Ambo town, Ethiopia. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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23 pages, 399 KiB  
Article
Effect of CSR on the Financial Performance of Financial Institutions in Kenya
by Martin Kamau Muchiri, Szilvia Erdei-Gally and Mária Fekete-Farkas
Economies 2022, 10(7), 174; https://doi.org/10.3390/economies10070174 - 19 Jul 2022
Cited by 3 | Viewed by 3647
Abstract
Corporate social responsibility (CSR) is an integral path towards realizing vision 2030 and the sustainable goals of the UN, as well as the sustainable development of individual countries. However, in recent years it has become increasingly clear that these goals cannot be achieved [...] Read more.
Corporate social responsibility (CSR) is an integral path towards realizing vision 2030 and the sustainable goals of the UN, as well as the sustainable development of individual countries. However, in recent years it has become increasingly clear that these goals cannot be achieved without sustainable corporate practices. Previous research seeking determine the effect of CSR on the financial performance of various institutions have yielded different results, leaving geographical, sectorial, and scholarly gaps. This study aimed to discover the effect of CSR on the financial performance of financial institutions in Kenya, as this country lacks a direct association between CSR and corporate financial performance (CFP). We focused on examining the effect of ethical, charitable, and gender-mainstreaming CSR activities on the financial performance of financial institutions in Kirinyaga County. A study population of 300 employees working in the financial institutions in Kirinyaga County was included, and a sample of 171 participants was selected using stratified and systematic sampling techniques. A causal research design was adopted, and data were analyzed using SPSS software. Questionnaires were administered in person to gather primary data. The study found a strong positive relationship between CSR practices and the financial performance of financial institutions and recommends that firms invest more in ethical, charitable, and gender-mainstreaming CSR activities, as such activities positively influence their financial performance. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
17 pages, 331 KiB  
Article
Exploring the Relationship between New Bank Debt and Earnings Management: Evidence from Italian SMEs
by Riccardo Palumbo and Pierangelo Rosati
Economies 2022, 10(6), 124; https://doi.org/10.3390/economies10060124 - 27 May 2022
Cited by 3 | Viewed by 1940
Abstract
This paper investigates the relationship between bank debt and earnings management in private SMEs in a bank-oriented economy. In this study, we leverage a sample of 4866 Italian private SMEs from 2005 to 2012 and propose a new metric to isolate the annual [...] Read more.
This paper investigates the relationship between bank debt and earnings management in private SMEs in a bank-oriented economy. In this study, we leverage a sample of 4866 Italian private SMEs from 2005 to 2012 and propose a new metric to isolate the annual increase in bank debt. The results of our OLS regression suggest that, even though bank monitoring is an effective mechanism to constrain firms’ earnings management, firms engage in higher income-increasing earnings management, as proxied by discretionary accruals, in the fiscal year prior to a new bank loan application. The results are robust to different econometric specifications and are not affected by endogeneity. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
25 pages, 1782 KiB  
Article
Formal vs. Informal Institutional Distances and the Competitive Advantage of Foreign Subsidiaries in Latin America
by Henrique Correa da Cunha, Mohamed Amal and James Mark Viminitz
Economies 2022, 10(5), 114; https://doi.org/10.3390/economies10050114 - 13 May 2022
Cited by 3 | Viewed by 2340
Abstract
By focusing on the tacit and explicit characteristics of informal and formal institutional distances, this study investigates the competitive advantage of foreign subsidiary firms from developed countries and emerging markets operating in Latin America. Following recent research on distances in international management, this [...] Read more.
By focusing on the tacit and explicit characteristics of informal and formal institutional distances, this study investigates the competitive advantage of foreign subsidiary firms from developed countries and emerging markets operating in Latin America. Following recent research on distances in international management, this study measured the size and direction of distances and computed formal institutional distances based on the world governance indicators from the World Bank, whereas informal institutional distances are calculated using the four original dimensions of Hofstede. Considering that culture is tacit, whereas formal institutions are explicit, it is argued that these differences affect the ability to convert experience dealing with cultural and formal institutional conditions in the home country into firm specific advantages (FSAs) in a foreign host country. These assumptions are tested quantitatively using data from the Orbis database, a sample that includes over 4200 firm-year observations covering 10 of the largest economies in Latin America. In a departure from previous studies investigating the implications of FID direction, it is shown that the effects in specific directions are different for foreign subsidiaries from developed countries and from emerging markets. The results reveal that emerging market firms are at an advantage when operating in less developed host countries, whereas foreign subsidiaries from developed countries can adjust more positively when operating in host countries with strong formal institutions. On the other hand, the effects of the different CD dimensions depend on the direction towards host countries with specific cultural profiles. These findings indicate that foreign subsidiaries from emerging markets have a clear advantage in dealing with institutional voids in Latin America (i.e., FID towards less developed host countries), whereas the effects of CD are the same for all firms. This suggests that the cultural profile of the host country is what really matters. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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13 pages, 303 KiB  
Article
The Influence of Operating Capital and Cash Holding on Firm Profitability
by Ashfaq Habib, Muhammad Asif Khan, József Popp and Mónika Rákos
Economies 2022, 10(3), 69; https://doi.org/10.3390/economies10030069 - 21 Mar 2022
Cited by 5 | Viewed by 5117
Abstract
This study analyzes the influence of operating capital on a firm’s profitability in the manufacturing sector of China. The study investigates that operating capital develops a non-linear relationship with firm profitability by using the ordinary least square (OLS), fixed effect (FE), and generalized [...] Read more.
This study analyzes the influence of operating capital on a firm’s profitability in the manufacturing sector of China. The study investigates that operating capital develops a non-linear relationship with firm profitability by using the ordinary least square (OLS), fixed effect (FE), and generalized method of moments (GMM) regression. The research reveals that positive operating capital in financially less-constrained firms significantly negatively influences the firm’s profitability. Conversely, negative operating capital in financially constrained firms significantly positively influences the firm’s profitability. Further, we find that financially less-constrained firms design an efficient level of operating capital by holding positive operating capital and negative cash, while constrained firms design an efficient level of operating capital by holding negative operating capital and positive cash. Additionally, we also identify the optimal level of operating capital to increase the firm’s profitability. Generally, we conclude that a firm can design a level of efficient operating capital by trading-off cash with non-cash assets. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
12 pages, 437 KiB  
Article
Gender, Perception of Audits, Access to Finance, and Self-Assessed Corporate Tax Compliance
by Sunardi Sunardi, Theresia Woro Damayanti, Supramono Supramono and Yustinus Budi Hermanto
Economies 2022, 10(3), 65; https://doi.org/10.3390/economies10030065 - 11 Mar 2022
Cited by 3 | Viewed by 3062
Abstract
This study explores the influence of financial statement audits on tax compliance directly and indirectly through access to finance, and it examines gender roles to improve tax compliance through access to finance and financial statement audits. The sample for this study consisted of [...] Read more.
This study explores the influence of financial statement audits on tax compliance directly and indirectly through access to finance, and it examines gender roles to improve tax compliance through access to finance and financial statement audits. The sample for this study consisted of 45,504 businesses located in developing countries, as determined by The World Bank Enterprise Survey 2006–2018. The primary findings of this study demonstrate that the audit of financial statements has a positive impact on tax compliance through access to finance. Another result is that firms with female top managers are more likely to comply with their tax obligations than those with male top managers. The key to improving tax compliance is that policymakers should encourage financial institutions to provide more significant opportunities for companies that audit financial statements to access larger amounts of capital and faster disbursement of funds. Firms should provide greater opportunities for women to occupy positions as top managers. It is the company’s responsibility to promote gender sharing programs, particularly for the human resources department. Our study integrates the concepts of financial statement audits, access to finance, and the gender of firm managers into a model to predict how firms comply with their tax obligations. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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26 pages, 2547 KiB  
Article
Bribery—Export Nexus under the Firm’s Growth Obstacles
by Trang Hoai Phan and Rainer Stachuletz
Economies 2022, 10(2), 28; https://doi.org/10.3390/economies10020028 - 19 Jan 2022
Cited by 1 | Viewed by 2643
Abstract
Business bribery is a particularly serious problem in the integration era. First, this article investigates the effects of institutional obstacles on firms’ bribery in 131 countries classified by nation income groups. Through the appropriate proposal of fitting functions, the relationship between obstructions and [...] Read more.
Business bribery is a particularly serious problem in the integration era. First, this article investigates the effects of institutional obstacles on firms’ bribery in 131 countries classified by nation income groups. Through the appropriate proposal of fitting functions, the relationship between obstructions and the predicted margin effect of bribery is intuitively elucidated. Second, this paper sheds light on the relationship between bribery payment and exports. Then the analysis is upgraded when controlling for the moderation of a firm’s growth constraints. The results detected that not only institutional barriers, but also internal and external hindrances play an essential role in the interaction between bribe payments and export share. More interestingly, this study scrutinizes the role of obstacles in this relationship separately. Besides, SMEs and large enterprises are also adopted in further sensitivity analyses. To solve the endogeneity problem, the study uses the average amount of bribery in a firm’s location, sector, and the country as an instrumental variable (IV). The results obtained are not consistent across country groups classified by national income. Due to obstacles during a firm’s operation, the amplitude of the positive effect of bribery on exports is reduced. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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22 pages, 1587 KiB  
Article
The Market Structure Simulation of Heterogenous Firms
by Arūnas Burinskas and Manuela Tvaronavičienė
Economies 2022, 10(1), 9; https://doi.org/10.3390/economies10010009 - 28 Dec 2021
Cited by 2 | Viewed by 1868
Abstract
The paper aims at the need for economic policy evaluators to assess how and whether specific measures can influence the development of markets in a way that achieves greater wealth. Therefore, this study concentrates on well-documented firms’ heterogeneity that significantly impact their ability [...] Read more.
The paper aims at the need for economic policy evaluators to assess how and whether specific measures can influence the development of markets in a way that achieves greater wealth. Therefore, this study concentrates on well-documented firms’ heterogeneity that significantly impact their ability to compete, influence the market structure, and decide to participate in trade. For the initial attributes and features of the simulated model, we chose Ottaviano demand function. However, we took a different approach regarding demand and its elasticities in the market by employing distributional functions to model the market demand and the demand for each firm’s product. Allowing for the evolution of the market structure, the model reveals the importance of endowment factors and suggests the crucial role of firms’ abilities to compete. What is more important—it affects the time needed for the market structure formation. Although the model does not track all the aspects of a firm’s heterogeneity, it might guide economic policy makers to not only support the business in increasing its capabilities but keep it struggling over the competition to impede the collecting of Ricardian rents. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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17 pages, 706 KiB  
Article
The Effects of the Strategy and Goal on Business Performance as Mediated by Management Accounting Systems
by Nimnual Visedsun and Kanitsorn Terdpaopong
Economies 2021, 9(4), 149; https://doi.org/10.3390/economies9040149 - 11 Oct 2021
Cited by 7 | Viewed by 4895
Abstract
Previous research in the literature often investigated the associations between management accounting systems and the success of organizations. However, little has been done in regard to the association of business strategies, goals, and firms’ performance while having management accounting tools as mediators. Management [...] Read more.
Previous research in the literature often investigated the associations between management accounting systems and the success of organizations. However, little has been done in regard to the association of business strategies, goals, and firms’ performance while having management accounting tools as mediators. Management accounting systems are classified as traditional and strategic management accounting themes. Each theme, of course, implements different accounting tools. This article explores the degree to which, as mediated by management accounting systems, the business strategies and business goals of large Thai manufacturing companies influence their financial and non-financial performance. To gather the data, a survey questionnaire was developed. Of the 1500 companies selected for inclusion in the survey, 205 provided completed and usable responses for a response rate of 13.67%. Structural equation modeling (SEM) was used to analyze the relationships among the variables. The findings shed some light on what the management of a firm could expect concerning organizational performance from their business strategies, business goals, and the implementation of specific management accounting systems. Corporate strategies and corporate goals had a statistical influence on both the financial and non-financial performance of the large corporations in Thailand when mediated via strategic management accounting systems, while there was no influence when mediated by traditional management accounting systems. A greater understanding of the relationships and effects of which mediators should have been employed in organizations to bring forth business strategies and business goals and generate productive results for organizational performance is provided by this research. Choosing the appropriate performance mediators can help achieve corporate strategies and goals. Full article
(This article belongs to the Special Issue Determinants of Firm Performance in Developing Countries)
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