Changes in Operational Efficiency and Firm Performance: A Frontier Analysis Approach

Baik, Bok; Chae, Joon; Choi, Su-Jin; Farber, David

doi:10.2139/ssrn.1681748

Cited by 26 publications

(55 citation statements)

References 73 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“… The first‐order autocorrelation of the DEA score is 0.87 (untabulated), comparable to that of 0.84 documented in Baik et al (). To the extent that our DEA measure is sticky over time, it should bias against finding significant results.…”

supporting

confidence: 84%

“…In untabulated analyses, we find that our results remain the same if we include these variables in the subsequent analyses. Third, it is possible that firms with lower operational efficiency have poorer financial performance (Baik et al ), which in turn increases the likelihood of internal control material weaknesses (Ashbaugh‐Skaife et al ; Doyle et al ). To control for this reverse causality, we employ the Heckman () two‐stage procedure.…”

Section: Resultsmentioning

confidence: 99%

“…As discussed in Baik et al (, 1001), “Because the efficiency measure is derived from the relation between inputs and outputs, the chosen inputs and outputs should adequately describe a firm's production function.” Prior research uses sales revenue as the output variable because it is the primary source of earnings and cash flows generated from firms' operating activities (Verma ; Thore et al ; Demerjian et al ). Following Demerjian et al (), we use seven input variables: (i) net property, plant, and equipment (PP&E); (ii) cost of goods sold (COGS); (iii) selling, general, and administrative costs (SG&A); (iv) capitalized operating leases; (v) capitalized research and development (R&D) costs; (vi) purchased goodwill; and (vii) other intangibles.…”

Section: Methodsmentioning

confidence: 99%

“…The evidence in this article contributes to the ongoing debate on the costs and benefits of SOX 404 reporting. To the extent that greater operational efficiency leads to higher profitability (Greene and Segal 2004;Baik et al 2013), the greater operational efficiency achieved through having effective internal control can help offset the compliance costs of SOX 404.…”

mentioning

confidence: 99%

See 3 more Smart Citations

Internal Control and Operational Efficiency

Cheng

Goh

Kim

2018

Contemporary Accting Res

153

110

View full text Add to dashboard Cite

In this study, we examine whether internal control over financial reporting affects firm operational efficiency. We find that operational efficiency, derived from frontier analysis, is significantly lower among firms with material weaknesses in internal control relative to firms without such weaknesses. We also find that the remediation of material weaknesses leads to an improvement in operational efficiency. Additional analyses indicate that the negative effect of material weaknesses on operational efficiency is stronger for firms with a greater demand for higher quality information for decision making, for weaknesses that are deemed to be more severe, and to a certain extent, for smaller firms. Overall, our study extends the literature by presenting systematic evidence on the effect of effective internal control on operational efficiency and informs the debate over the costs and benefits of the internal control reporting requirements under the Sarbanes‐Oxley Act of 2002.

show abstract

supporting

confidence: 84%

Section: Resultsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Internal Control and Operational Efficiency

Cheng

Goh

Kim

2018

Contemporary Accting Res

153

110

View full text Add to dashboard Cite

show abstract

“…Furthermore, they find that the market's reaction to PM is stronger than to ATO. Lately, Baik et al [2013] use frontier analysis to demonstrate that operational efficiency (measured as ATO) is useful in predicting firm performance.…”

Section: Forecasting Profitability In the Fsa Literaturementioning

confidence: 99%

Improving Profitability Forecasts with Information on Earnings Quality

Demmer

2015

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractPrior literature documents the usefulness of the DuPont disaggregation for predicting firms' future profitability, operating income, and stock market returns. In addition, research also emphasizes the importance of earnings quality information. However, there is a lack of research examining how earnings quality affects forecasts of profitability. This paper explores whether different earnings quality factors moderate the accuracy of profitability forecasts. This study contributes to the existing literature along three dimensions. First, contrary to financial statement analysis studies, I find that changes in profit margin provide incremental information for predicting changes in future return on assets. After controlling for earnings quality factors, the incremental usefulness of this accounting signal increases significantly. Second, this paper contributes to the earnings quality literature by providing an approach as how to include this information into forecasts of profitability. In doing so, I incorporate the main drivers of earnings quality (i.e. fundamental performance and the accounting system) into profitability forecasts. Last, the paper adds to the literature on how capital market participants perceive accounting information. I document that both analysts and investors appear to efficiently incorporate earnings quality information in their investment decisions. JEL classification: M41

show abstract

Does relative (absolute) efficiency affect capital costs?

Mali

Lim

2021

Ann Oper Res

View full text Add to dashboard Cite

In this paper, we examine the effect of relative/absolute firm efficiency on weighted average cost of capital (WACC). Using a sample of Korean listed firms, we find that WACC is negatively associated with relative firm efficiency (operational performance) suggesting that firms with higher (lower) relatively efficiency are expected to pay lower (higher) capital costs. When we repeat our analysis using absolute firm efficiency (ROA), we do not find a statistically significant relationship. Our results suggest relative efficiency which is estimated as output (sales) divided by the resources that are directly under the control of management is assessed by capital providers and impounded into a firm’s capital costs. Absolute efficiency (ROA) which is estimated as sales divided by total assets is not. Our results suggest that simple accounting ratios used in the accounting literature are not considered as informative to explain borrowing costs compared to relative efficiency that captures managerial operational performance.

show abstract

Changes in Operational Efficiency and Firm Performance: A Frontier Analysis Approach

Cited by 26 publications

References 73 publications

Internal Control and Operational Efficiency

Internal Control and Operational Efficiency

Improving Profitability Forecasts with Information on Earnings Quality

Does relative (absolute) efficiency affect capital costs?

Contact Info

Product

Resources

About