Juha-Pekka Kallunki

Managerial cognition, action and the business model of the firm

– The purpose of the paper was to outline a generic framework for the business model and illuminate its linkages to managerial cognition., – The paper reviewed the focal literature focusing on the actions and evolution of a firm and built a synthesis that describes the different components of a business model., – The main finding was that a business model is essentially both a cognitive phenomenon as well as being built on the material aspects of a firm., – The paper proposes that the business model can be scrutinized in future studies, especially from the viewpoints of cognition, thus creating new avenues for intra‐firm evolutionary studies., – The paper found several implications for practising managers. First, the concept itself creates possibilities for self‐analysis and scenario building. Second, the understanding that a business model is systemic helps managers to evaluate their actions vis‐a‐vis the evolutionary path of the business model. Third, the outlined business model is useful in executive education as it creates a cognitive map of the various aspects of business activities., – The paper offers new insights into the functions and evolution of firms and will be of interest to both researchers and practising managers.

Impact of enterprise resource planning systems on management control systems and firm performance

In this study, we extend existing research on enterprise resource planning systems by exploring the effects of enterprise system adoption on subsequent non-financial and financial performance of a firm. Specifically, we investigate the role of formal and informal management control systems as mechanisms which mediate the effect of enterprise resource planning systems adoption on firm performance. Our empirical analyses are based on survey data drawn from 70 Finnish business units. Overall, our findings demonstrate that formal types of management control systems act as intervening variables mediating the positive lagged effect between enterprise systems adoption and non-financial performance. Informal types of management control systems, however, do not show similar mediating effects. We also predict and find a significant relationship between non-financial and financial firm performance. These results are important because the evidence on the joint roles of enterprise systems and management control system on improving the firm performance is very limited in prior literature. Our results show that the use of enterprise systems results in improved firm performance in the long run, and that more formal than informal types of management controls help firms achieve future performance goals.

Finnish earnings response coefficients: the information content of losses

This paper provides new evidence on the information content of losses in the relation between stock returns and annual accounting earnings. Consistent with earlier US evidence, accounting losses are not significantly related to stock returns in Finland. Moreover, it is shown that the different methods used to measure earnings in Finland affect the frequency of losses, substantially altering the estimated return-earnings relation. The results suggest that earnings adjusted in accordance with the recommendations of the Finnish Committee for Corporate Analysis are not more useful than the unadjusted reported earnings in explaining stock returns in Finland.

Delayed Price Response to the Announcements of Earnings and its Components in Finland

Several studies report that even after accounting earnings are announced, estimated cumulative unexpected returns continue to drift up for firms that report unexpectedly good earnings and down for firms that report unexpectedly bad earnings. This paper shows that because Finnish companies tend to pay more attention to tax considerations than so-called economic reality when preparing their financial reports, this drift does not exist for reported earnings, i.e. net profit based on Finnish accounting regulations. It appears, however, that several other income levels assessed by financial statement analysis are important in this respect. The results imply that firms that make extensive adjustments for tax purposes have high unexpected returns. This is explained by the fact that those firms have enough income to extensively exploit the depreciation and other earnings management possibilities.

Liquidity and the turn-of-the-month effect: evidence from Finland

Abstract This paper uses Finnish data to investigate the impact of liquidity on the turn-of-the-month (TOM) effect in stock returns. The empirical findings support the hypothesis that higher returns at the TOM than during the rest of the month is associated with increased liquidity, as measured by different measures of trading activity. Moreover, consistent with the hypothesis of increased buying pressure at the TOM, the number of bid quotes increases at the month-end. In addition, there is more in-house trading (internalization) at the TOM. This finding is consistent with the hypothesis that liquidity increases internalized trading, indicating that the TOM effect manifests itself with respect to the trading venue.

Stock Market Valuation, Profitability and R&D Spending of the Firm: The Effect of Technology Mergers and Acquisitions

In this paper, we investigate whether a firm can enhance the effect of its R&D spending on its current market value and future profitability through technology-oriented M&As. On the basis of an analysis of 1,879 M&As, we find that when a technology firm acquires another technology firm, the magnitude of the stock price response to the R&D spending of an acquirer increases by 107% in the year of the M&A. In contrast, we find no such increase in the stock price response to the R&D spending of a non-technology acquirer. We also find that technology acquirers are more successful in converting their R&D spending into positive future profitability than non-technology acquirers. Our results are robust for different alternative specifications of our model and when various firm differences are controlled for.

Handling missing prices in a thinly traded stock market: implications for the specification of event study methods

This paper employs a simulation approach to provide new evidence on how thin trading affects the specification of the event study methods in a thinly traded environment. We examine the properties of the returns computed with alternative procedures for handling missing prices as well as their impact on the specification of the event study methods. We use the simulation approach to asses the specification of different methods. The results indicate that the way missing prices are approximated clearly affects the estimated abnormal returns and the consequent test statistics. The increase of variance in the event period needs to be taken into account when estimating standard deviations.

Internalization and stock price clustering: Finnish evidence

Abstract Internalization, the practice of brokers executing trades in-house, is a significant phenomenon in the Helsinki Stock Exchange. During the continuous trading session, 97.5% upstairs market trades are internalized. The corresponding figure for after-hours upstairs market trades is 73.1%. The prices of internalized trades are somewhat more clustered than the prices of other trades during the continuous trading session, but they are not more clustered than the prices of negotiated trades in the after-hours upstairs market. This suggests that Finnish brokers do not use a more discrete set of prices for internalized trades than for other upstairs trades.

Stock returns and earnings announcements in Finland

The stock markets reaction to the earnings announcements of Finnish firms is investigated. A risk estimation approach based on accounting information is applied along with a market model. Accounting information is utilized for risk estimation purposes by using the information incorporated in the accounting variables measuring the real determinants of systematic risk. The empirical results indicate that the delay in the markets reaction to negative unexpected earnings differs from that of the positive unexpected earnings. The results of comparing different risk adjusting methods indicate that the drift in stock returns around the earnings announcements is weaker in the case of long return windows when the risk estimation method based on the pure accounting information is applied. This indicates that the previous results concerning the drift in returns may be due to incorrectly measured abnormal returns.

Earnings management as a predictor of future profitability of Finnish firms

This study investigates whether the level of current earnings management can be used to predict future profitability of Finnish firms. Earnings management is assumed to predict future profitability, because firms use discretional accruals to manage this years earnings upwards/downwards, if they believe that the next years earnings will be high/low. Finnish data are used because the extent of the earnings management can be directly measured from the published Finnish financial statements. The results indicate that the lagged earnings management is significantly related to the future profitability of a firm. The lagged earnings management also contains incremental information relative to past profitability or stock prices when predicting future profitability.