Predicting Economic and Financial Performance through Machine Learning

Purpose This study aims to examine the potential effect that corporate social responsibility (CSR) practices in general and business ethics, more specifically, can exert on the financial performance of companies using advanced machine learning (ML) techniques. Design/methodology/approach Based on a sample of 523 international firms headquartered in North America and Western Europe between 2005 and 2019, the research design employs advanced machine learning algorithms including LightGBM, CatBoost, XGBoost, NGBoost, Support Vector Machine, and Random Forest to assess the relationship between business ethics, CSR practices, and financial performance. In addition, the SHapley Additive exPlanations (SHAP) technique was used to provide comprehensive insights into feature contributions to individual predictions. Findings Findings indicate a growing interest in business ethics and societal practices over the past decade. The results have revealed that the adoption of an ethical and socially responsible approach is associated with financial performance. Practical implications This study provides actionable insights for multinational companies, emphasizing the role of business ethics and social responsibility practices in enhancing financial performance. It also holds significance for practitioners aiming to improve financial efficiency. By exploring the relationship between social effectiveness and financial efficiency, this research leverages ML techniques to offer a deeper understanding of this critical connection. Originality/value This study contributes to the field by using advanced ML techniques, including SHAP, to explore the relationship between business ethics and CSR practices on Financial Performance. The findings, particularly the superior accuracy of XGBoost among algorithms, provide valuable insights into the implications of business ethics and social practices on firm financial performance.

The purpose of this study was to examine the effect of economic, environmental, social and governance performance on companies with financial performance as a mediating variable. This study took a sample of 10 companies on the Indonesia Stock Exchange, which were published in financial reports from 2017-2022. This research analysis method using path analysis. The results of the study show that economic performance, environmental performance, social performance and governance performance have no effect on firm value. Financial performance has no effect on company value both before Covid-19 and after Covid-19. Before Covid-19 economic performance had an effect on company value, but after Covid-19 economic performance had no effect on company value. Before and after Covid-19 environmental performance did not affect company value Before Covid-19 social performance had an effect on company value, but after Covid-19 social performance had no effect on company value. Before and after Covid-19, governance performance did not affect company value. Economic performance, environmental performance, social performance, and governance performance did not directly affect company value through financial performance, both before Covid-19 and after Covid-19.

The integration of financial and sustainability performance in corporate reporting has emerged as a critical practice for companies aiming to provide a comprehensive view of their business impacts, risks, and value creation strategies. Traditional financial reporting, focused primarily on economic performance, often overlooks environmental, social, and governance (ESG) factors, which are increasingly relevant to stakeholders and long-term organizational success. This paper reviews the evolution and significance of integrating sustainability metrics into financial reporting frameworks, examines the challenges and benefits associated with combined reporting, and assesses the effectiveness of current standards, such as the Global Reporting Initiative (GRI) and the International Integrated Reporting Council (IIRC). Additionally, the study explores stakeholder demand for transparent, holistic reporting and highlights the impact of integrated reporting on corporate reputation, investor trust, and regulatory compliance. Findings indicate that organizations adopting integrated reporting not only enhance transparency but also improve decision-making, risk management, and alignment with sustainable development goals. However, challenges remain, including harmonizing diverse reporting standards and addressing the complexity of quantifying non-financial metrics. The paper concludes with recommendations for advancing integrated reporting practices to foster greater alignment between financial performance and sustainability objectives, promoting a more sustainable and inclusive global economy.

This research examines sustainability in a social enterprise, delving into the quantitative variables, namely, social impact, social mission, and financial responsibility towards financial performance. This study evaluated whether businesses practicing social entrepreneurship were sufficiently sustainable in light of media accounts that report their economic and community performance. By examining key indicators across economic, community, and financial performance, this study provides evidence-based insights into their contributions to sustainable development and identifies areas for improvement. The participants are Metro Manila-based social enterprises that have been operating for over five years. The inclusion criteria for the social enterprises were the following: (1) sought a mission to solve social problems, (2) established a sustainable model, and (3) recognized by domestic opinion leaders to be innovative and potentially leading to more considerable systematic change. The quantitative data were analyzed using R Statistics Environment and Statistical Package for the Social Sciences (SPSS) version 23. The data was summarized in frequency tables, and the output was presented using descriptive statistics. The ratio and gathered data were tested using the Multiple Regression Analysis (MRA) to show the effect between dependent and independent variables. The results show that Economic Performance and Community Performance significantly influence most sustainability metrics of the study subjects. Among the sustainability variables, only social mission had a significant impact on Return on Assets and Return on Equity. Social enterprises may utilize the results from this study to formulate better ideas in their respective fields and create opportunities to make their businesses more sustainable.

PurposeThe purpose of this paper is to provide empirical evidence of the relationship between intellectual capital (IC) and economic performance, with focus on social cooperative enterprises (SCEs) that work in non-profit sectors.Design/methodology/approachA survey was developed and administered in Italy. A final sample of 151 SCEs participated in the study. Data were collected on IC measures, social enterprise activities and economic and mission-based performance outcomes.FindingsTwo hypotheses that proposed a positive association between IC sub-components (i.e. human capital, structural capital and relational capital) and the economic and mission-based performance of SCEs were tested. Findings highlight that human capital contributes to explain economic performance which is positively affected by the presence of graduate employees and value added per employee. However, economic performance is negatively affected by the yearly training per employee. In addition, human and relational capital contribute to explain mission-based performance which is positively affected by yearly training, the value added per employee and the quality of relationships with customers. However, mission-based performance is negatively affected by the relationships’ quality with the reference territorial community. Therefore, relational capital would seem to affect only mission-based performance, and human capital influences both dimensions of corporate performance. Structural capital does not affect social cooperatives’ performance.Practical implicationsSome of the results in this study are particular to this research setting. It is therefore important for senior leaders of SCEs to take the results of general IC literature with a grain of salt. Whereas most of the academic literature generally supports the positive relationship of all IC sub-components (i.e. human, structural and relational capital) with performance outcomes, this is not the case in this particular study.Originality/valueThis is the first empirical study that has examined the linkages between IC sub-components and performance outcomes in SCEs in Italy.

Using financial performance as a link, this study looks at how sustainability reports affect the value of a company in the property and real estate sector. The population of this research consists of 92 companies listed on the Indonesia Stock Exchange (IDX) that operate in the property and real estate sector. The sample for this study includes 7 companies that meet the criteria. The data analysis method used in this research is quantitative with a causal design, processed using Eviews 12. The results of the study indicate that sustainability reports and financial performance positively affect firm value, and economic performance also positively affects financial performance. However, environmental and social performance does not significantly affect financial performance. Additionally, the study proves that financial performance acts as a mediating variable that connects the influence of economic performance on firm value.

Kenya's banking sector demonstrated resilience in 2021, with capital adequacy ratios over 14.5% and liquidity ratios above 20%. Despite a slight decline in food inflation and deposit rates, banks maintained stable performance, achieving a return on assets of about 1.5%. In this study, macroeconomic factors were examined to determine how they affect Kenyan commercial banks' financial performance, which facilitate international money transfers and connect savers with borrowers and are critical for economic growth. However, the sector faces significant financial challenges that have adversely affected the country's overall economic performance, worsened by global and domestic financial issues. Using firm size as a moderator, this study examined the impact of key macroeconomic factors such as inflation, interest rates, money supply, and currency exchange rates on commercial banks' financial performance in Kenya. Theories of interest, balance of payments, classical interest, deflation, organization, and quantity theory of money informed the research. An explanatory research design was adopted, focusing on all 42 commercial banks operating in Kenya. A comprehensive survey was conducted across these banks, utilizing existing data sourced from official audited financial statements over the past six fiscal years, from 2018 to 2023. Statistical measures such as mean, standard deviation, and multiple regression and correlation analysis were assessed by using descriptive statistics. Diagnostic statistics, including autocorrelation, homoscedasticity, multicollinearity, and normality tests were also employed. Ethical considerations were upheld by obtaining informed consent from all participants and properly referencing all materials and sources used. The study revealed that inflation, exchange rate, interest rate and money supply had a positive and significant effect on the financial performance of commercial banks in Kenya. The research finds that inflation generally results in elevated interest rates as central banks strive to manage rising prices, leading to greater interest earnings from loans due to their ability to impose higher rates. Commercial banks frequently participate in foreign currency dealings, encompassing loans, deposits, and trading activities. The research suggests that commercial banks ought to adopt several strategies like modifying interest rates for sustained profitability, diversifying investment portfolios to reduce risks, and prioritizing cost management to enhance operational efficiency.

Purpose- The purpose of this study is to compare the success of alternative data imputation techniques with missing data. The study distinguishes itself from the rest of the literature by proposing an appropriate technique for mixed data on financial performance and environmental, social and governance (ESG) metrics of companies. In addition to simple imputation techniques, we also use machine learning techniques that allow working with more complex data. Methodology- We first employ ad-hoc methods such as mean, median, mode, constant, most frequent and regression imputation. In what follows, we handle multivariate imputation techniques such as multiple imputation by chained equations (MICE). Finally, we run imputation methods with machine learning (ML) classification such as K-nearest Neighbor (KNN), Ridge and Random Forest. To consider the assumptions of missing data, we first check the normality of the variables with Kolmogorov-Smirnov test and employ Rubin’s classification technique that defines the relationship among variables with the probability of missing data. The success of imputation techniques applied to missing data changes when the missing data are classified with Rubin’s technique according to randomness. Consequently, we apply listwise deletion at various levels and alternative data imputation techniques. We then compare their performances. The raw data contain parametric as well as categorical variables (binary and others). Among these are time-series (yearly) financial series such as sales and total assets obtained from financial statements, ESG scores as well as float ratios for firms from several countries and industries. Imputation is done randomly on a sample varying from 5% to 30% of the dataset and results are compared to true data based on accuracy or other measures such as root mean square errors (RMSE) or mean absolute percentage error (MAPE). Several robustness checks have been performed to supplement the analysis. Findings- Results show that ML methods such as KNN have a superior performance than others. Moreover, when multidimensional nature of the data is taken into account, the prediction performance improves. Hence, an optimality can be reached based on parameters. Conclusion- Based upon the analysis, we conclude that the selected imputation technique and how it is employed matter to attain a higher accuracy and a better prediction of the missing values on selected mixed panel data in finance. Keywords: Imputation techniques, Panel data, Machine learning, Financial performance, ESG JEL Codes: C55, C81, M14, Q51

Sustainability report is a report produced by firms which disclose their economic, environmental and social performance. These reports are normally geared toward the attainment of the United Nations sustainable development goals (SDGs). Even though compliance is voluntary in Nigeria, its effects on firm’s financial performance are enormous and as a result, it is essential for firm’s prosperity as well as better financial performance. This study examines the effect of sustainability reporting on financial performance of quoted Nigerian oil and gas firms. The population of the study comprises 12 listed oil and gas firms in Nigeria. Census sampling technique was adopted and filter was used. For firm to be selected it must be listed on or before 1st January 2009 and remain listed up to 31st December 2019. The firm must also publish their annual reports for the relevant period of the study. Based on these, five firms that failed to meet the set criteria were filtered out. This study makes use of Return on Asset to measure financial performance. Secondary source was used to collect the relevant data. Data in relation to sustainability reporting were extracted from the firm’s annual reports as well as standalone sustainability reports. However, data in relation financial performance were collected from the firm’s annual reports. Data for this study were analyse using STATA 13 statistical software. The regression result revealed that economic sustainability has a positive insignificant effect on ROA; environmental sustainability has a positive significant effect on ROA while social sustainability has a positive insignificant effect on ROA. Based on the findings, this study therefore, concludes that sustainability reporting has a significant effect on the financial performance of listed oil and gas firms in Nigeria. This study therefore, recommends among others that, listed Nigerian oil and gas firms should emphasize more on reporting their sustainability activities as it is capable of improving their financial performance. The policy makers and standard setting organisations should facilitate the issuance of a sector specific reporting guidelines to facilitate compliance.

Corporate Governance and Financial Performance

This study aims to investigate the impact of board gender diversity on firm performance and risk management, with a focus on the moderating effects of CEO education, CEO power, and institutional investors, in companies listed on the Tehran Stock Exchange. The statistical sample includes 116 companies listed on the Tehran Stock Exchange over the period from 2018 to 2022. The models employed in this study are multivariate linear regression models, analyzed using EViews 10 software. The hypothesis testing results indicate a significant and negative relationship between board gender diversity and financial performance (return on assets). There is a significant and positive relationship between board gender diversity and financial performance (return on equity). No significant relationship was found between board gender diversity and financial performance (Tobin's Q). A significant and positive relationship was identified between board gender diversity and economic performance (market value added and economic value added). Moreover, there is a significant and positive relationship between board gender diversity and non-financial performance (corporate social responsibility). However, no significant relationship was found between board gender diversity and other non-financial performance indicators (innovation, employee growth, internal process factor, customer factor, and learning and growth factor). Additionally, no significant relationship was observed between board gender diversity and risk management (operational risk, reporting risk management, and strategic risk management). There is, however, a significant and positive relationship between board gender diversity and risk management regarding non-compliance with laws and regulations.

Purpose – To establish a Governance Index (GOVI) to measure the relationship and influences with economic and financial performance and of volume of operations in a third sector entity. Design/methodology/approach – Exploratory, documentary and bibliographic research and content analysis, in order to achieve a GOVI derived from the use of independence, accountability and transparency variables in the period between 1986 and 2010. Questionnaires, administrative and accounting information are all used to characterize economic and financial performance indexes and determinants of the operations volume of the studied entity. Data was statistically processed through descriptive analysis, confirmatory factor analysis, and logistic regression analysis. Findings – The research came to two conclusions: the proposed data collection instrument presented good adjustment indexes; and the GOVI has a significant relationship with the variables used to measure performance. This may indicate that determining the GOVI is a suitable tool for confrontation and measurement of performance of nonprofit organizations. Moreover, managers’ independence should be largely used in management of third sector entities. Originality/value – The validation of the data collection instrument and the way the GOVI was obtained is one of the contributions of this study, since similar ways of measuring third sector performance were not found in literature. Choosing economic and financial performance and operations volume to study the relationship with the GOVI in nonprofit entities also was not found.

Institutional theory suggests that organizational behaviors are interpreted and carry implications under a larger environment, including a national political environment. Although corporate social responsibility (CSR) is not an exception, neither the political nature of CSR nor CSR’s impacts on firms’ financial performance in different political contexts has been sufficiently explored. In this paper, we note the influential role of the presidents and their administrations in shaping policies and leading public opinion about social issues (e.g., LGBT rights), and examine how the impacts of CSR addressing a social issue may differ depending on the presidents’ action and rhetoric on the issue. We zoom in on Presidents Obama and Trump and focus on social issues surrounding military veterans, LGBT, and communities by looking into the CSR reported in tweets and screened through machine learning. We found that CSR conducted to assist a social group results in higher stock prices during the presidency undermining the group than during the presidency supportive of the group. We also found that CSR conducted to assist those having a general appeal has similar impacts on stock prices regardless of the presidency during which it is conducted. Overall, our findings about CSR impacts have implications about politically contextual CSR, CSR from a social identity perspective, and the socio-business case of CSR.

PurposeThe purpose of this study is to empirically examine the effect of marketing modification on business performance from the perspective of marketing capabilities theory.Design/methodology/approachThis study employed a survey method to collect data from 225 food processing small- and medium-sized enterprises (SMEs) on the Ghana Enterprise Agency (GEA) registered list in the Eastern Region of Ghana. The effect of marketing modification on the performance of SMEs in the food processing industry was evaluated using a structural equation modeling (SEM) – path analysis.FindingsAccording to the study’s findings, marketing modification has a positive and significant impact on the financial performance (FP), customer performance (CP), internal business process performance (IBPP) and learning and growth performance (LGP) of Ghanaian SMEs engaged in food processing. The results of this study also demonstrated the importance of marketing modification determinants, such as marketing resources (MR), cross-functional and interenterprise collaboration (CFIEC), architectural marketing capability (AMC) and marketing strategy decision implementation (MSDI), in achieving food processing SME performance in Ghana.Research limitations/implicationsThis current research has its limitation, even though its importance has been mentioned earlier. First, the study can be improved by expanding the sample size through the inclusion of other SMEs from other industries since it is industry specific (i.e. food processing SME). Second, this current study was conducted in Ghana. To compare results, the current study may be replicated in other emerging countries. Third, future research studies may consider how business environmental factors such as technological change (e.g. use of artificial intelligence and machine learning) moderate the relationship between marketing modification and SME performance.Practical implicationsThe outcomes of this research study are anticipated to give profitable implications to both academicians and practitioners. For the academic aspect, this study provides an important contribution to marketing modification and performance literature by examining the impact of innovative marketing on the performance of food processing SMEs in Ghana. For practitioners, this study indicates that food processing SME owners/managers must focus on marketing modification to develop their performance. The increase in marketing modification application through marketing capabilities such as MR and CFIEC will enable owners/managers to achieve performance targets.Social implicationsThe application of marketing modification among food processing SMEs in Ghana will contribute greatly to their profitability, survival and growth. The growth and survival of food processing SMEs (not limited to food processing SMEs) in Ghana will help in the control of unemployment, which is a major social issue in Ghana.Originality/valueThe study’s findings provide solid support for the marketing capabilities theory. This study also supports the notion that food processing SMEs should perceive marketing modification and its determinants (i.e. MR, CFIEC, AMC and MSDI) as a critical strategic capacity to enhance their performance (i.e. FP, CF, IBPP and LGP). In terms of contribution, this study adds to the body of knowledge already available on marketing modification and business performance, particularly in the setting of an emerging economy.

Coffee growing is an important activity for Brazilian agribusiness, and several production factors can reflect on economic and productive results. In this sense, the objective of this work was to evaluate, through Structural Equation Modeling, the interactions between property structure and effective operational costs with productivity, product value, and economic performance for coffee growing in Brazil. It was observed that the property structure positively influences productivity, but the hypotheses that they influence product value and economic performance were not validated. As for the effective operating costs, it was only possible to affirm a negative influence on financial performance. In this way, the study contributes to the formation of strategies among producers as well as providing theoretical support on the applicability of the structural equation modeling technique. Finally, it is suggested the use of new managerial indicators to measure economic performance, the evaluation of the impact of coffee beverage quality on costs and ownership structure, in addition to replicating the study for other crops such as oranges, apples, bananas, and papaya.