The free cash flow hypothesis for sales growth and firm performance

Article Abstract:

Issues discussed concern corporate governance, cash flow, and sales growth. Research findings suggest firms with tightly managed cash flow benefit more from sales growth than firms with free cash flow and less strong governance.

United States, Cash Management, Statistical Data Included, Finance, Corporate governance, Corporate finance, Sales management

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What does a small corporate effect mean? A variance components simulation of corporate and business effects

Article Abstract:

A Monte Carlo simulation was performed to determine how indicative variance component estimates are of the importance of corporate strategy. This study was conducted to provide clarification to research undertaken by Rumelt (1991), which estimated the relative impact of corporate, business unit and other variables on the profitability of a business unit, and concluded that the corporate effect has a negligible variance component. Findings of this current study revealed that variance components can be a highly nonlinear representation of importance. This study also challenged Rumelt's assertion that corporate effect indicates the likely contributions of corporate strategy to the performance of business units. Therefore, his findings should not be interpreted as an indicator of the unimportance of corporate strategy.

Management research, Strategic planning (Business), Analysis of variance

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The relative influence of industry and corporation on business segment performance: an alternative estimate

Article Abstract:

A simultaneous-equation model that employs continuous-variable techniques is presented as an alternative to Rumelt's (1991) study, which found that corporate influence on business unit profitability is quite small. Rumelt and related studies use the two techniques of variance components analysis and analysis of variance, which have proven to be problematic in measuring the effects of industry, corporation and business unit. Unlike these earlier studies, this research utilizes a continuous-variable model characterized by two-stage least-squares on the COMPUSTAT industry segment database. This method involves fewer degrees of freedom and thus may result in better estimates, which means lower variance. Using the model, it was found that both corporations and industries affect business unit profitability, with corporations having the greater influence.

Usage, Profit, Profits, Industry, Industries, Equations, Simultaneous, Simultaneous equations

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