Firm’s survival, rating and efficiency: new empirical evidence
| DOI | https://doi.org/10.1108/IMDS-03-2016-0102 |
| Pages | 1185-1200 |
| Published date | 10 July 2017 |
| Date | 10 July 2017 |
| Author | Alessandro Manello,Giuseppe Giulio Calabrese |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
Firm’s survival, rating
and efficiency: new
empirical evidence
Alessandro Manello
CNR-IRCrES, Moncalieri, Italy and
University of Turin, Turin, Italy, and
Giuseppe Giulio Calabrese
CNR-IRCrES, Moncalieri, Italy
Abstract
Purpose –The purpose of this paper is to investigate the determinants of firms’survival during crisis in the
Italian automotive value chain.
Design/methodology/approach –The authors propose a survival analysis, based on a dichotomic model,
in which supply chain features, technical efficiency (TE) and ratings are included as explanatory variables
with other controls.
Findings –TE and financial health positively influence survival. Some supply chain variables are significant
such as direct supply, geographical location and outsourcing level, whereas the proximity to the national
carmaker is insignificant.
Research limitations/implications –The main limitation of the study is the lack of qualitative data
related to supply management practice in the automotive industry.
Originality/value –The study combine supply chain aspects with firms’survival, TE and financial ratings.
Keywords Technical efficiency, Automotive supply chain, Financial rating, Firm’s survival
Paper type Research paper
1. Introduction
“Hazardous conditions for the auto industry”(The New York Times, 2008), “Uncertainty
in U.S. auto industry puts pressure on suppliers”(International Herald Tribune, 2008),
“Tsunami storm among component suppliers”(Les Echos, 2010a) and “The European
OEMs at greater risk of bankruptcy than the U.S.”(Les Echos, 2010b) are some of the
examples of alarmist titles on the business press from 2008 to 2010 concerning the crisis
and its possible consequences on the weaker part of the automotive industry. The recent
structuring of the automotive industry in tiers, which has progressively taken place over
the last 20 years, has increased the power of tier 1 suppliers, producing modules or
systems, in cooperation and collaboration with a wide network of tier 2 and tier 3 small- to
medium-sized enterprises (Birchall et al., 2001; Gereffi et al., 2005; Sturgeon and Van
Biesebroeck, 2011).
The paper is focused on the automotive industry that still remains a fundamental sector
in all developed economies but has been a sector strongly influenced by the recent crisis, for
instance, in Italy, 14 per cent of the firms have exited the market (Enrietti and Calabrese,
2013). In this sense, only few empirical studies have investigated how a disruptive global
event, such as the recent crisis, impacts a specific supply chain ( Jüttner and Maklan, 2011).
At the same time, a growing number of recent contributions have tried to shed light on the
interactions between value chain features and the impact of the crisis, but their focus is
mainly on firms’performance or firms’internationalisation (Accetturo and Giunta, 2016;
Giovannetti et al., 2015). However, given the strong restructuring and re-allocation in the
automotive industry, with a production level decreased by 40 per cent in Italy, the focus on
performance, by definition, will limit the attention to survived firms. This is one of the main
motivation for which we investigate the issue of firm survival, a hot topic of the recent
Industrial Management & Data
Systems
Vol. 117 No. 6, 2017
pp. 1185-1200
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-03-2016-0102
Received 14 March 2016
Revised 25 October 2016
Accepted 27 October 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
1185
Firm’s
survival, rating
and efficiency
literature, and its relationship with supply chain aspects. Among more recent contributions,
many studies focus on Italy and investigate intangibles (Landini et al., 2015), re-integration
processes and suppliers’capacity (Agostino et al., 2015) as key factors for reducing
bankruptcy risks, but substantially ignore the role of supply chain positions. Therefore,
a specific investigation on supply chain aspects as explanatory variables for survival
probability of firms represents an absolute novelty in both the field of supply chain analysis
and firm’s survival:
H1. Supply chain aspects (like the kind of activity and the level of outsourcing) influence
the survival possibilities of automotive firms during the crisis.
The strong heterogeneity among firms cannot allow a direct comparison of firms in general
and of firms operating in different value chain positions in particular. Heterogeneity sources
are numerous, but at least in the automotive sector, the technological status and the
pre-crisis financial health seem very important and differentiated among firms, as argued
by Manello et al. (2016). Removing them allows, on the one hand, to isolate and quantify the
influence of those aspects, while, on the other hand, to identify the net effect of supply chain
position and firm-specific controls:
H2. The probability of surviving is positively related to previous technical performance
and financial health, even after removing other important sources of heterogeneity
among firms.
During the period of crisis, resources reallocation may be more disruptive than the
Schumpeterian theory suggests, especially if not only “bad”firms exit from the market
but also good firms cannot survive. Short-term liquidity constraints represent the main
friction between theory and reality: good firms investing to increase their scale or
technical efficiency (TE) are more financially exposed than not-investing firms. During an
increasing credit crunch, firms characterised by lower equity and more difficulties in
returning bank loans are in trouble: the risk of insolvency increases as well as their
rating decreases, with lower possibilities of obtaining credit. Moreover, Italian data on
internationalised and innovative firms highlight how they are in a weaker financial
situation as compared with their foreign counterpart, mainly due to their smaller size
(Bugamelli et al., 2012). Liquidity constraints may be more important for innovative firms
and for highly efficient firms which invest, even if there is not a specific empirical
evidence on it:
H3. During the crisis, not only bad firms (i.e. inefficient in technical terms) but also good
firms fail for liquidity constraints; however, in general, firms going into bankruptcy
are the worst in technical terms.
One of the most important innovation from our paper is the combination of different
methodologies which have never been used together. On the one hand, we estimate technical
performances of Italian firms operating in the automotive sector, for obtaining TE scores.
Such indicators have been computed using data envelopment analysis (DEA), and they
measure the capacity of producing output for each input bundles. On the other hand,
we compute rating scores, a synthetic indicator of financial health commonly used in the
business sector, also for small and medium firms according to a very recent financial model.
Finally, we combine these two sets of results: our research is devoted to understand if only
low-rating firms exit from the market during the crisis or if the recent crisis reduces
indiscriminately survival rates for all firms within the automotive supply chain (ASC).
The obtained estimates of firms’survival probabilities during the recent crises conclude the
empirical part and highlight the existing relationship among ratings, technical aspects,
supply chain features and survival chances.
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