Growth and Financial Performance in the Communications Sector and the Service Sector in Mexico.
Advances and theoretical evolution in the economic-financial area have made it essential to determine and know the mathematical relationship that tangible and intangible assets have on growth and financial performance in order to be properly considered in the strategic management provided by the directors of public and private companies and by researchers.
Since the 1980s, the dominant paradigm in research on growth and financial performance, for the most part, emphasizes the approach and the idea that companies should be seen as a whole as a set of resources and capacities when charting their strategies, having as one of their main objectives the generation of value and, consequently, the construction and achievement of their competitive advantages (Lockett, Thompson, & Morgenstern, 2009).
Achieving adequate strategic management in organizations is essential to identify and analyze the growth and financial performance generated as a result of adequate investment of financial resources and optimal strategic management of tangible and intangible assets.
Investment strategies in tangible and intangible assets are conceived and applied by different disciplines, which is why when they are researched and when trying to measure their impact on growth and financial performance different approaches have been adopted as well as different techniques, models and measurement because of the difficulty of constructing a mathematical model that considers a multidisciplinary perspective. This is caused by the different approaches, different terminology as well as the diverse assumptions that exist between the disciplines (Venkatraman & Ramanujam, 1986).
Nowadays, empirical studies elaborated in relation to the financial and organizational strategies mostly try to identify the competitive advantages which look for survival and achieving financial performance in accordance with the profitability requirements demanded by businessmen. The conception of strategic management in accordance with business growth and profitability performance demanded by businessmen has motivated the interest, the necessity and the importance of reviewing the theoretical concepts and the empirical postulates adopted. The purpose of this research paper is to identify the mathematical relationship exercised by the variables of tangible and intangible resources on the variables of financial performance and growth in sales of companies in the communication sector and the service sector in Mexico.
The theory of resources and capabilities to conduct research that identifies the impact on financial performance and sales growth caused by the investment in tangible and intangible assets in the short term and in the long term considered in strategic management have not been approached with a comprehensive vision, which identifies their configuration and determines their relationship between resources and the capacities that cause an adequate financial performance; nor has it been possible to reach a final conclusion. This motivated us to review and analyze the various theoretical approaches and empirical studies that address the issue (Yarbrough, Morgan, & Vorhies, 2011; Parnell, 2011).
Theory of Resources and Capabilities
Considering companies as a broad system or set composed of resources and capabilities goes back to the research developed and published by Penrose (1959) since then the theory of resources and capabilities over time has been enriched in its diverse approaches, ideas and postulates have also been enriched by the incorporation of technologies, the large number of mathematical models and the various theoretical approaches used by researchers from multiple disciplines.
The Resource Based-View Theory (RBVT) analyzes the relative importance of the company's resources and capabilities, taking into account that these resources offer support for the competitive advantages that generate growth, increase financial performance and value in companies. It also conceives a particular way of managing, investing and positioning investments over time to generate a good relationship with sales growth and financial performance, represented by the latter's operating profit in companies (Wernerfelt, 1984; Lockett, Thompson, & Morgenstern, 2009).
The empirical studies carried out on growth and financial performance of companies that have used the theory of resources and capacities as support have found strong differences in the class and combination of the diverse resources used not only between companies of the same industry but also between groups of the same industry. These differences suggest that the effects of individual, company-specific resources on growth and profitability or financial performance can be very significant (Mahoney & Pandian, 1992; Hansen & Wernerfelt, 1989; Cool & Schendel, 1988).
Companies throughout their lives generally accumulate a unique combination of resources and tangible and intangible capabilities. They also accumulate skills and knowledge that cannot be transferred easily or without cost. The organizations are heterogeneous and have different endowments of tangible and intangible resources, product of their history, luck and past decisions. The competitive advantages of companies are supported or formed taking as a basis this pool of resources and capabilities (Fernandez & Suarez, 1996; Teece, Rumelt, Dosi, & Winter, 1994; Teece, 2007).
Controversy in The Definition and Analysis of Resources
Considering companies as a broad system or set composed of resources and capabilities goes back to the research developed The key challenge faced by resource and capacity theorists has been to define and classify what the term "resources" means. Researchers and professionals interested in the RBVT have used a variety of different terms to talk about the "resources" of a company and have also faced controversies in the definition of competences, abilities and strategic assets. After more than four decades of research, it is still an unresolved issue; hence, theorists still have to continue explaining and defining the current classification of the resources that are summarized in dynamics and operations (Prahalad & Hamel, 1990; Grant, 1991; Amit & Schoemaker, 1993, 1996; Capron & Hulland, 1999).
The identification of the characteristics, the analysis, and interpretation of the resources is condensed by Guizzardi (2005) in the following definition: A resource is "an abstraction of elements of structure" that also includes a relation of "realization" that can be used to "connect the structural elements to the resources". In sectors where the resource is dominant, companies can obtain one or several strategic advantages, resulting in sales growth and high operating profitability or financial performance.
The resources and capabilities of a company have also been defined as those assets (tangible and intangible) that are linked semi-permanently to the company and that produce and offer products or services efficiently or effectively with value for some segments of the market. Examples: brand names, internal knowledge of technology, employment of qualified personnel, business contacts, machinery, efficient procedures, capital, etc. (Caves, 1980; Hunt & Morgan, 1995).
Classification of Resources and Capabilities: Radical and Gradual Dynamic Changes
In the classification of resources and capabilities, the difficulty to indicate or define with precision and in a radical way when a resource or capacity is dynamic or ordinary prevents the use of the concept or similar concepts in an identical or continuous manner, causing a disruptive or discontinuous change. On the other hand, it is likely that the scope of the radical classification of resources and capabilities is only a matter of perspective, experience, and degree. It is very difficult to indicate when a resource or capacity is dynamic or ordinary because resources and capacities that promote an important but gradual economic change are also considered dynamic (Helfat & Winter, 2011). This criterion complicates the desire to draw a line between dynamic and operational capabilities.
The specific resources and capabilities generated or acquired by a company offer more than the support of one or several competitive advantages. They also, allow the company to achieve its particular activities in a reliable and satisfactory manner (Helfat & Winter, 2007). The resources and capabilities of companies describe their processes and routines, integrating and reconfiguring resources and high-level organizational skills (Wang & Ahmed, 2007).
Changes in general take time, and a slow change requires more time than a quick change to build something easily discernible. In the research conducted by Birnholz, Cohen, and Hoch (2007), it is mentioned that this is "the paradox of the world in constant change." If everything is changing all the time, what then is the basis of the impression that some things do not change at all? In the perspective of a researcher, if small details are examined closely, much more change is observed than if large phenomena or high-level descriptions are observed, or the phenomenon is perceived from a distance.
Resources and capacities are a basic determinant of success, growth and financial performance of organizations; therefore, they constitute the base of business strategy and sustainable competitive advantage (Schoemaker, 1990). Generalists and specialists observe investments in working capital and investments in installed capacity differently. The fixed assets over time hide important changes that support competitive advantage and strategy of a company. Examining the investments or the installed capacity to manufacture a particular good or service for a short period of time occasionally does not allow the observation of any change and leads to erroneously concluding that investments in fixed assets lack dynamic capacities.
Fixed assets that support on-going businesses in moderately dynamic environments or apparently non-radical changes can have important dynamic attributes that play a fundamental role in the development and competitiveness of companies, generating competitive advantages, increasing growth, financial performance and decreasing risks.
Financial Performance (Operating Profit)
The strategic, administrative, and economic process of an organization significantly influences its functioning and the objectives that are key to achieving its financial performance. Setting clear objectives generates strategies and action plans that govern and facilitate compliance with the general goals of the organization and those of the shareholders who contribute the capital to acquire all the tangible and intangible assets used by the company in its operation and investment.
Measuring financial performance in organizations requires using the figures in the financial statements. The results are transformed into indicators by applying financial ratios classified into groups to quantify and measure sales growth and financial performance among others." Financial ratios are designed to reveal the relatively strong and weak points of a company" (Besley & Brigham, 2000, pp.132). Among the various groups of financial ratios are the reasons for liquidity, reasons for asset management, reasons for debt management, reasons for market value and reasons for profitability or financial performance (Moreno, 2003).
Financial performance is increased by the turnover of the portfolio in accounts receivable, the costs and expenses associated with the collection activity, the payment of interest as well as the levels of taxes to which the activities of the organization are subject, the profitability is also improved by the levels of income in the line of sales, the increase in the rotation of total assets, decreasing the level of investment in assets or increasing the sale of products or services with the same amount of investments in available assets. Another way of increasing profitability is achieved by increasing the turnover of stockholders' equity, which increases the net profit margin and financial leverage, achieving a high and adequate profitability or financial performance for the company and in general for the shareholders.
The most important activity made by companies is the sale of their products or services because the success of the organization depends largely on the number of sales of existing products or new products or services which cause the performance of the company to increase. The increase or growth in sales can also be achieved by diversifying its offer to enter different markets and expanding its business portfolio. The financial performance can also increase substantially with the application and use of innovative ideas. These are often the key to success for organizations. (Bjork, Boccardelli, & Magnusson, 2010).
In economic-financial studies, the concept of growth in organizations is referenced and measured considering changes and increases in sales or measuring the increase in financial performance. The increase in sales of products or services generates significant increases in the quantity as well as changes in the internal characteristics of the economic and organizational structure. The increases can be reflected in all or several of the following variables: investment in assets, growth in its production lines, growth in its products and services, new markets, and greater profits in operating profit.
QUESTIONS, OBJECTIVES AND HYPOTHESIS
Financial theory considers that the investment in the operation and in the installed capacity constitute an important part of the financial objective of the company, which is identified with the normative principle of increasing the value of the company and maximizing the wealth of the shareholders, considering these objectives as a rational guide for the efficient placement of cash surpluses in the investment of tangible and intangible assets.
The theoretical assumptions of resources and capacities, the variables used in the planning and administration of the regulation of behaviors that replace the prescriptive models of the general investment of companies support the approach of the following questions, objective and hypothesis in a solid way:
Questions: How are the resources that support the operation and the resources supporting the investment in fixed assets or installed capacity related to the financial performance and sales growth of the companies in the communication sector and the service sector in Mexico?
Objective: Determine how the resources that support the operation and investment in fixed assets or installed capacity are related to the financial performance and sales growth of companies in the communication sector and the service sector in Mexico.
Hypothesis: The analysis of the theoretical framework as well as the questioning and the objective formulated in this investigation gave rise to the following hypothesis:
H1. The investment in resources that support the operation and investment in fixed assets or installed capacity are positively related to the growth in sales and the financial performance of companies in the communication sector and the service sector in Mexico.
The analysis of the theoretical framework, the questions, objective and hypotheses formulated, give sustenance to the following construct:
The econometric model known as panel data was chosen and used to calculate the mathematical relationship that exists between the dependent and independent variables. The technique of the panel data model combines the data of the temporal dimension and the cross-sectional (Gujarati, 2003). The panel data technique elaborates and tests complex models. According to Carrascal (2004), it is applicable in the following areas: a) Sales prediction, b) Cost studies, c) Financial analysis, d) Macroeconomic prediction, e) Simulation, f) Analysis and evaluation of any type of statistical data.
The fundamental characteristic of panel data, which distinguishes it from the cross-sectional technique, is the monitoring of the same companies continuously, combining the cross-sectional technique with the technique of time series (Wooldridge, 2001). The available information is processed and presented in two dimensions, generating multiple point observations for each economic unit, enriching the empirical analysis with observations that would not be possible if only the time series or cross-sectional methods were applied in isolation (Rivera, 2007; Mayorga & Munoz 2000; Gujarati, 2003; Mur & Angulo, 2006).
The model recognizes two effects. Firstly, the individual effects that refer to those that are affected in an unequal way to each one of the studied agents contained in the sample. Secondly, the temporary effects that equally affect all the individual units of the study that do not vary with time, which studies the changes in the benefits of a single company in a period of time as well as the variation in the benefits of several companies as a whole (Pindyck, 2001).
SOURCE AND DATA COLLECTION
The data of the variables of the companies of the communication sector and the service sector were obtained from the financial statements published in the financial yearbooks of the Mexican Stock Exchange. The source is very reliable because companies that are listed on the stock exchange have the legal obligation to generate reports that integrate the financial statements at the end of each quarter (Schneider, 2001).
The study sample was non-probabilistic because all the companies in the communication sector and the services sector that were quoted on a constant basis during the period between 2000-2012 were considered. All the companies included in the sample are classified as large, according to the stratification of the Official Federal Gazette of June 2009.
In the analysis, two independent variables were considered: 1) The financial resources that support the operation activity and those that are represented by current assets; 2) The financial resources that support the investment and that are represented by fixed assets or installed capacity. Furthermore, two dependent variables were considered: sales representing the growth of the organizations and the operating Profit representing the financial performance.
The sample consisted of 6 corporate groups representing 49 subgroups made up of 368 companies to offer the service. See Table 1.
The sample consisted of 7 groups and 70 corporate representatives representing 1,144 companies that were constantly quoted in the communication sector. See Table 2.
ANALYSIS AND INTERPRETATION OF RESULTS
The null hypothesis was defined as follows: Ho: Bi = 0 where i corresponds to the independent variable at the level of significance of 5%.
It is the average of all the possible division coefficients by halves that result from the different ways of dividing the reagents of the scale. This coefficient varies between 0 and 1, and when the result is equal to or less than 0.6, it indicates an unsatisfactory reliability of internal consistency (Malhotra, 2008). The Cronbach's alpha statistic is considered a correlation coefficient (Molina, 2008). Its utility lies in indicating if the different items of the scale are measuring a common reality, that is, if the answers to these items do not have a high correlation with each other, it would mean that some of the scale statements are not reliable measurements of the construct. In the investigation, the reliability of the database elaborated with the information of the financial statements of the companies in the sample was tested with the software Spss-Version 21.0. The results are presented in Table 3.
The results demonstrate that the reliability of the scale is high in the 4 items of the two sectors. There is an excellent correlation when obtaining a Cronbach's alpha value of 0.711 in the communication sector and a value of 0.774 in the service sector.
Growth (Sales) in the Communication Sector, Multivariate Panel Data Technique
The final results after adjusting and applying the econometric method through the panel data technique are shown in Table 4:
Financial Performance in the Communication Sector: Multivariate Panel Data Technique
The final results after adjusting and applying the econometric method through the panel data technique are shown in Table 5:
In the communications sector in Mexico, the multivariate regression of fixed effects panel data shows that the Current Asset has a positive mathematical correlation with growth (sales), showing an explanatory capacity of 0.9273. In contrast, the result showed that fixed assets do not have any significant mathematical correlation with growth (sales). See summary in Table 6.
In companies in the communications sector in Mexico, the result obtained shows that current assets and fixed assets have a positive correlation with financial performance, showing an explanatory capacity of 0.9174. See summary in Table 6.
Growth in the Services Sector, Multivariate Panel Data Technique
The final results after adjusting and applying the econometric method through the panel data technique are shown in Table 7:
Financial performance in the service sector: Multivariate Panel Data Technique
The final results after adjusting and applying the econometric method through the panel data technique (Table 8).
In the services sector, the multivariate regression of fixed effects panel data shows that current assets and fixed assets have a positive correlation with growth (sales), showing an explanatory capacity of 0.6250. See summary in Table 9.
In the companies of the service sector in Mexico, the result that was obtained shows that the current assets have a positive relationship with the financial performance, showing an explanatory capacity of 0.9537. In contrast, the result showed that fixed assets do not have a significant mathematical correlation with financial performance. See summary in Table 9.
The research complied with its object of study, which consisted in identifying the positive or negative mathematical relationship of the quantitative variables of current assets and fixed assets with growth and financial performance through the statistical technique of "panel data", in the companies in the communications sector and the services sector that were continuously quoted on the Mexican stock exchange in the period from 2000 to 2012.
In the model, the dependent variables were: growth in sales and operating income, and as independent variables: current assets and fixed assets.
* In the communications and services sector, there is a positive relationship between current assets and growth in sales.
* In the communications and services sector, there is a positive relationship between current assets and financial performance.
* In the communications sector, there is no mathematical relationship between fixed assets and sales growth. In contrast, in the service sector, there is a positive mathematical relationship between fixed assets and sales growth.
* In the communications sector, there is a positive mathematical relationship between fixed assets and financial performance. In contrast, in the services sector, there is no mathematical relationship between fixed assets and financial performance.
* The results obtained are useful for generating regulations and guidelines, facilitating decision making when planning and managing the current assets and fixed assets of companies in the communication sector and the service sector in Mexico. The results will minimize uncertainty and will support investment decisions in the tangible and intangible assets of investment projects carried out by companies in the communications sector and service sector.
Limitations of the Investigation
The present investigation focused in a particular way on its object of study that consisted of identifying the mathematical relationship of the current assets and the fixed assets with the financial performance and the growth of the companies of the communication sector and the service sector in Mexico. Factors that emanate from the qualitative characteristics such as culture, power, country risk, and personal values, are aspects that can influence and modify the results obtained, which is why we suggest they be included in future research.
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Note: Contact the author for the full list of references
Juan Gaytan-Cortes, University of Guadalajara
Joel Bonales-Valencia, University Michoacana of San Nicolas of Hidalgo
Antonio de Jesus Vizcaino, University of Guadalajara
Table 1 Companies in the Service Sector that were Continuously Quoted on the Mexican Stock Exchange During the Period 2000-2012 No. GROUP COMPANIES 1 Grupo Posadas S.A.B. de C.V. 105 2 Grupo Aeroportuario del Sureste S.A.B. de C.V. 9 3 Grupo S.A.B. de C.V. 6 4 Corporacion Mexicana de Restaurantes S.A.B. de C.V. 204 5 Grupo Medica Sur S.A.B. de C.V. 31 6 Grupo Aeroportuario del Centro Norte S.A.B. de C.V. 13 TOTAL Grupos... 6; Corporativos... 49 368 Source: Own elaboration with the annual lists of issuers published by the Mexican Stock Exchange. Table 2 Companies in the Communication Sector that were Continuously Quoted on the Mexican Stock Exchange During the Period 2000-2012 No. GROUP Companies 1 America Movil S.A.B de C.V. 310 2 Grupo TMM S.A.B. de C.V. 8 3 Empresas Cablevision S.A.B. de C.V. 21 4 Grupo Radio Centro de Mexico S.A.B de C.V. 31 5 Telefonos de Mexico S.A.B. de C.V. 385 6 Grupo Televisa S.A.B de C.V. 43 7 Tv Azteca S.A.B. de C.V. 346 TOTAL Groups... 7; Corporations... 70 1,144 Source: Own elaboration with the annual lists of issuers published by the Mexican Stock Exchange. Table 3 Cronbach's Alpha Communication and Service Sector Communication Sector 0.711 No. of elements 4 Service Sector 0.774 No. of elements 4 Source: Output data of the Spss-Version 21.0 program, using survey data Table 4 Panel Data, Final Results, Using the Stata-11 Program xtreg Sales, Current Assets, Fixed Assets, faith Fixed-effects (within) regression No. of obs = 78 between avg = 13 = 0.9273 sales Coef. Std. Err. t P>t Activo 2.773209 0.2881072 9.63 0.000 Circulante Activo 0.0093473 0.0247063 0.38 0.706 Fijo _cons -1.74e+07 6568666 -2.66 0.010 between = 0.9273 sales [95% Conf. Interval] Activo 2.198598 3.347821 Circulante Activo -0.0399278 0.0586224 Fijo _cons -3.05e-07 -4346920 Source: Own elaboration with financial data from the Mexican Stock for the period of 2000-2012. Table 5 Panel Data, Final Results Using the Stata-11 Program xtreg Sales, Current Assets, Fixed Assets, faith Fixed-effects (within) regression Number of obs = 78 between avg = 13.0 = 0.9174 utilidad de Coef. Std. Err. t P>t Operacion Activo 0.5504032 0.0648798 8.48 0.0000 Circulante Activo Fijo 0.0137578 0.0055637 2.47 0.0160 cons -985190.5 1479220 -0.67 0.5080 between = 0.9174 utilidad de [95% Conf. Interval] Operacion Activo 0.4210044 0.6798019 Circulante Activo Fijo 0.0026614 0.0248542 cons -3935401 1965020 Source: Own elaboration with financial data of the Mexican Stock Exchange for the period of 2000-2012. Table 6 Communications Sector: Summary of Variables with Their Mathematical Relationship CONCEPT Current Assets (+) Fixed Assets (+) Growth (Sales) 0.000 *** 0.706 Financial Performance 0.000 *** 0.0160* (Operating profit) Source: Own elaboration with the output results of the STATA-11 program (See Tables 4 and 5) Table 7 Panel Data, Final Results, Using the Stata-11 Program xtreg Sales, Current Assets, Fixed Assets, faith Fixed-effects (within) regression between avg = > 13 = 0.6250 Ventas Coef. Std. Std. Err. t P>t Activo 0.1865217 0.0209555 8.9 0.000 Circulante Activo Fijo 0.2563433 0.0746098 3.44 0.001 _cons 583752.7 281617 2.07 0.042 between = 0.6250 Ventas [95% Conf. Interval] Activo 0.14473 0.22 83162 Circulante Activo Fijo 0.10754 0.4 51479 _cons 22085.2 11 45420 Source: Own elaboration with financial data of the Mexican Stock Exchange for the period of 2000-2012. Table 8 Panel Data, Final Results, Using the Stata-11 Program xtreg Sales, Current Assets, Fixed Assets, faith Fixed-effects Number of (within) obs = 78 regression between avg = 0.9537 = 13.0 util_op Coef. Std. Err. t P>t Activo 0.0684152 0.0074859 9.14 0.0000 circulante Activo fijo 0.0378841 0.0266525 1.42 0.1600 _cons 44739.5 100600.8 0.44 0.6580 Fixed-effects (within) regression between = 0.9537 util_op [95% Conf. Interval] Activo 0.0534851 0.08 33453 circulante Activo fijo -0.0152727 0.09 10409 _cons -155902.4 245 381.4 Source: Own elaboration with financial data of the Mexican Stock Exchange for the period of 2000-2012. Table 9 Service Sector: Summary of Variables with their Mathematical Relationship CONCEPT Current Assets (+) Fixed Assets (+) Growth (sales) 0.000 *** 0.001*** Financial Performance (Operating 0.000 *** 0.160 profit) Source: Own elaboration with the output results of the STATA-11 program (See Tables 7 and 8)
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|Author:||Gaytan-Cortes, Juan; Bonales-Valencia, Joel; Vizcaino, Antonio de Jesus|
|Date:||Jul 1, 2018|
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