Etiennot, H.; Diaz Hermelo, F.; McGahan, A., 2017. How do industry and country impact firm performance? A national and supranational analysis. Review of Managerial Science, First Online: 27 November 2017: pp. 1-31.
We contribute to the literature of the country, industry and firm effects on performance by developing an autoregressive cross-classified mixed-effect linear model that examines heterogeneity in the profitability of corporations in emerging and developed economies, as well as corporations located in different supranational regions. To this purpose, we simultaneously decompose abnormal returns into permanent and transitory components at the firm, industry, country and industry–country levels. We find that firms in emerging countries have significantly higher rates of performance persistence and different sources of persistence compared to firms located in developed countries. These differences are also evident between different supranational regions and countries at different levels of institutional development.
Diaz Hermelo, F.; Etiennot, H.; Vassolo, R., 2014. Sources of performance heterogeneity in emerging economies. Management Research: The Journal of the Iberoamerican Academy of Management, Vol. 12 Issue 2: pp. 176-202.
Purpose: The purpose of this paper is to explore location effects on firm performance in emerging economies simultaneously accounting for permanent and transitory country, industry, country-industry and firm-specific effects.
Design/methodology/approach: The authors utilize a novel methodological approach: an autoregressive, cross-classified, mixed-effect linear regression model that allows them to simultaneously estimate a permanent (long-run) component, a transitory (short-run) component and the speed of decay of the transitory (autoregressive) component.
Findings: The authors find that the firm-specific effect is most important in explaining permanent and transitory differences. The country–industry interaction is the second most important effect, confirming that industries are not completely global and are still subject to country conditions. Broader views of the country–business context and industry conditions taken independently would be incomplete unless the country–industry interactions are considered. In other words, country matters because industry matters and vice versa. Country effects are also significant, but only transitory emphasizing the dynamic nature of emerging economies and the shortcomings that may result from considering the country business context static. Finally, the authors find that the chances of achieving sustainability of abnormal returns in emerging economies are dynamic and have significantly increased recently.
Originality/value: To the authors' knowledge, this is the first to simultaneously estimate country, industry, country–industry and firm effects on the permanent and transitory components of abnormal returns in a sample of emerging economies. The study generates important evidence regarding the sources of sustainable differentiation for firms competing in emerging economies. Finally, the authors find that chances of achieving sustainability of abnormal returns in emerging economies are dynamic and have significantly increased recently.
Etiennot, H.; Vassolo, R.; Diaz Hermelo, F.; Mc Gahan, A., 2013. How much does industry matter to firm performance in emerging countries?. Academy of Management Proceedings, Vol. 2013, Issue 1: .
In this article, we contribute to understanding of country, industry and firm effects on performance by examining heterogeneity in the profitability of corporations from both emerging and developed economies. Using a linear regression method that accounts for cross classifications, mixed effects, and auto correlation, we analyze 137,858 observations on the return on assets of 25,149 firms in 42 sectors of 65 countries during the period from 2000 to 2007. The results indicate that the components of performance in emerging markets differ significantly from developed economies in systematic ways: (1) country effects dominate industry effects on performance; (2) emerging-market corporations face significantly greater volatility in returns, with the temporary components of profitability more significant than the permanent components; and (3) idiosyncratic, firm-specific effects dominate all other effects on performance for emerging-market companies. We interpret these differences to suggest their specific implications for business and public policy.
Diaz Hermelo, F., Etiennot, H., Vassolo, R., 2012. Sources of Performance Heterogeneity in Emerging Economies. Academy of Management Proceedings, Vol. 2012, Nr. 1: .
Using a novel methodology to study the dynamic behavior of firms’ performance in emerging economies, we find that the firm-specific effect is the most important in explaining permanent and transitory differences. The country-industry interaction is the second most important effect, confirming that industries are not completely global. Finally, evidence exists of significant increases in performance persistence over time.
Etiennot, H.; Preve, L.; Sarria Allende, V. , 2012. Working Capital Management: An exploratory study. Journal of Applied Finance, Vol. 22, No. 1: .
Working capital management is an issue in which finance research is scarce. One possible reason behind this fact might relate to the relative ease with which efficient financial markets correct deviations from optimal working capital policies. However, in less efficient financial markets, pervasive among emerging economies, working capital management is critical for both firms performance and survival. The difference in the market's ability for providing immediate assistance to firms might explain the differential consequences on firms' profitability and financial distress. This article explains the fundamentals of working capital management, the importance of its interaction with financial markets, and how this interaction might explain working capital patterns around the world.