nep-bec New Economics Papers
on Business Economics
Issue of 2012‒01‒18
23 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  2. Age, diversification and survival in the German machine tool industry, 1953-2002 By Alex Coad; Christina Guenther
  3. Paying for Performance: Incentive Pay Schemes and Employees' Financial Participation By Alex Bryson; Richard Freeman; Claudio Lucifora; Michele Pellizzari; Virginie Perotin
  4. New Methods for the Analysis of Links between International Firm Activities and Firm Performance: A Practitioner’s Guide By Joachim Wagner
  5. The Quality of the KombiFiD-Sample of Business Services Enterprises: Evidence from a Replication Study By Alexander Vogel; Joachim Wagner
  6. Three Empirical Essays in Economics Using Firm Level Panel Data By Paula, Georg
  7. How does the social distance between an employee and a manager affect employee competition for a reward? By Glenn Dutcher
  8. Price Competition or Tacit Collusion By Makoto Yano; Takashi Komatsubara
  9. Examining the decision to spin off new corporate ventures By Isabel Pizarro; Julio DeCastro; Jose Luis Galán
  10. The Retooling Challenge: Canada's Struggle to Close the Capital Investment Gap By Colin Busby; William B.P. Robson
  11. Employment Protection and Business Cycles in Emerging Economies By Ruy Lama; Carlos Urrutia
  12. Forecasting US bond default ratings allowing for previous and initial state dependence in an ordered probit model By Paul Mizen; Serafeim Tsoukas
  13. A Structural Model of Demand, Cost, and Export Market Selection for Chinese Footwear Producers By Mark J. Roberts; Daniel Yi Xu; Xiaoyan Fan; Shengxing Zhang
  14. Do Financial Investors Destabilize the Oil Price? By M. J. LOMBARDI; I. VAN ROBAYS
  15. Labor, Output and Consumption in Business Cycle Models of Emerging Economies: A Comment By Andrés Fernández; Felipe Meza
  16. Knowledge networking and growth in service firms By B. SCHOONJANS; P. VAN CAUWENBERGE; H. VANDER BAUWHEDE
  17. The risk effects of acquiring distressed firms By E. BRUYLAND; W. DE MAESENEIRE
  18. Bootstrapping as a Resource Dependence Management Strategy and its Association with Startup Growth By T. VANACKER; S. MANIGART; M. MEULEMAN; L. SELS
  19. Who Is Hurt by E-commerce? Crowding out and Business Stealing in Online Grocery By Andrea Pozzi
  20. The determinants of board compensation in SOEs. An application to Italian local public utilities By Anna Menozzi; Fabrizio Erbetta; Giovanni Fraquelli; Davide Vannoni
  21. Productivity Gains from Services Liberalization in Europe By Jan Bena; Peter Ondko; Evangelia Vourvachaki
  22. How Do Industries and Firms Respond to Changes in Local Labor Supply? By Christian Dustmann; Albrecht Glitz
  23. Average wage, qualification of the workforce and export performance in German enterprises: Evidence from KombiFiD data By Joachim Wagner

  1. By: Fernando Díaz (Facultad de Economía y Empresa, Universidad Diego Portales); Gabriel Ramírez (Coles College of Business, Kennesaw State University)
    Date: 2011–08
  2. By: Alex Coad; Christina Guenther
    Abstract: We focus on the relationship of age and diversification patterns of German machine tool manufacturers in the post war era. Based on trade journals we track the entire firm populations' product portfolio development throughout each firm's lifetime. We distinguish between 'minor diversification' and 'major diversification', where these two concepts refer to adding a new product variation within a familiar submarket, or expanding the product portfolio into new submarkets. Our analysis reveals four main insights. First, we observe that firms have lower diversification rates as they grow older, and that eventually diversification rates even turn negative for old firms on average. Second, we find that product portfolios of larger firms tend to be more diversified. Third, with respect to consecutive diversification activities, quantile autoregression plots show that firms experiencing diversification in one period are unlikely to repeat this behavior in the following year. Fourth, survival estimations reveal that diversification activities reduce the risk of exit controlling for various additional firm and industry specific fixed effects and business cycles. These results are interpreted using the Penrosean growth theory.
    Keywords: Diversification, industry evolution, firm age, firm growth, machine tools
    JEL: L20 L25
    Date: 2012–01–03
  3. By: Alex Bryson; Richard Freeman; Claudio Lucifora; Michele Pellizzari; Virginie Perotin
    Abstract: We present new comparable data on the incidence of performance pay schemes in Europe and the USA. We find that the percentage of employees exposed to incentive pay schemes ranges from around 10-15 percent in some European countries to over 40 percent in Scandinavian countries and the US. Individual pay and profit/gain sharing schemes are widely diffused, whereas share ownership schemes are much less common, particularly in Europe. We document a number of empirical regularities. Incentive pay is less common in countries with a higher share of small firms. Higher product and labour market regulation are associated with lower use of incentive pay. Capital market development is a necessary requirement for a wider diffusion of incentive pay, particularly sharing and ownership schemes. When we control for a large set of individual characteristics and company attributes, we find that the probability that a worker is covered by an incentive scheme is higher in large firms and in high-skilled occupations, while it is much lower for females.
    Keywords: performance pay, financial participation, institutions
    JEL: J24 J33 D31
    Date: 2012–01
  4. By: Joachim Wagner (Institute of Economics, Leuphana University of Lüneburg, Germany)
    Abstract: This paper is a non-technical introduction to the use of three micro-econometric tools that have only recently been applied in empirical investigations of the links between international firm activities and firm performance. It shows why it is important to use these methods, how to use them in practice and which new insights are found in empirical applications. Topics include the role of extremely different firms (or outliers) in the computation of performance premia of internationally active firms; different performance premia over the distribution of the performance variable when unobserved heterogeneity matters; and the analysis of causal effects of different intensities of international firm activity on firm performance.
    Keywords: Robust fixed effects estimation, fixed-effects quantile regression, generalized propensity score, international firm activity, firm performance
    JEL: F14 C21 C23
    Date: 2012–01
  5. By: Alexander Vogel (Institute of Economics, Leuphana University of Lüneburg, Germany); Joachim Wagner (Institute of Economics, Leuphana University of Lüneburg, Germany)
    Abstract: This study tests whether the KombiFiD sample can be regarded as a high quality data set for empirical research on enterprises from business services industries. It performs an empirical investigation using the original data in a first step and replicates exactly this investigation using the KombiFiD sample in a second step. We find that large business services firms are oversampled in the KombiFiD agreement sample which leads to a higher share of exporting business services firms compared to the original data. After controlling for firm size and industries results based on the original data and on the KombiFiD sample are highly similar for West German firms. Therefore, the KombiFiD sample can be regarded as a sound base for empirical studies on West German firms from business services industries. For East Germany, however, the number of business services firms seems to be too small for empirical analyses, at least in the field of firm’s export participation.
    Keywords: KombiFiD, Germany, business services firms
    JEL: C81
    Date: 2012–01
  6. By: Paula, Georg
    Date: 2011–11–02
  7. By: Glenn Dutcher
    Abstract: This study examines how employees internalize differences in social distance between themselves and their managers when they are competing for a reward given by the manager. In an employer/employee relationship, this difference in social distance between the employer and the various employees leads to a disadvantageous situation for the socially distant workers when raises, promotions, special considerations etc. are given. Since social distance is present in most organizations, understanding how employees work effort changes in response to changes in social distance is of upmost importance. In prior literature, this disadvantage has always been assumed/shown to lead to lower effort than the advantaged worker. The results partially back up this claim and show that females who are socially distant from their manager contribute much less than females who are socially closer or males regardless of the social distance.
    Keywords: Experiment, Social distance
    JEL: C91 C92
    Date: 2011–12
  8. By: Makoto Yano (Institute of Economic Research, Kyoto University); Takashi Komatsubara (Institute of Economic Research, Kyoto University)
    Abstract: Every now and then, we observe a fierce price war in a real world market, through which competing firms end up with a Bertrand-like price competition equilibrium. Despite this, very little has been known in the existing literature as to why a price competition market is formed. We address this question in the context of a choice between engaging in price competition and holding a price leader. Focusing on a duopoly market, we demonstrate that if supply is tight relative to demand, and if the cost differential between firms is reasonably large, a price competition market is formed non-cooperatively.
    Keywords: Keywords: Price Competition, Price Leader, Market Organization Game
    JEL: D21 D43 L11 L13
    Date: 2012–01
  9. By: Isabel Pizarro (Department of Business Administration, Universidad Pablo de Olavide); Julio DeCastro (Department of Strategic Management & Entrepreneurship Instituto de Empresa, Madrid); Jose Luis Galán (Department of Business Administration, Universidad de Sevilla)
    Abstract: When developing a new venture, a company is faced with the problem of balancing between its autonomy and its control. Utilizing both transaction-cost and resource-based theories, we analyze how entrepreneurial managers’ perceptions of the strategic relationship between firm and corporate venture (CV) determine the choice of internalizing or externalizing the CV. The results indicate that managers would encourage externalization of a CV if its near-term profitability forecast were low; if the risks involved were high; or if the technological synergies with the firm were low. For high market relatedness, managers would encourage internalization of the CV when the importance of the new competences is high
    Keywords: Corporate ventures; internalization; spin off; strategic importance; operational relatedness
    Date: 2011–11
  10. By: Colin Busby (C.D. Howe Institute); William B.P. Robson (C.D. Howe Institute)
    Abstract: Investment in plant and equipment per worker by business in Canada has long lagged that in the United States and other major developed countries, likely contributing to disappointing productivity growth in Canada. Fiscal and regulatory changes that would increase the rewards to investment and enhance competitive pressures to innovate would help ensure that Canadian workers in all provinces have the tools to keep pace with rivals abroad and achieve high and growing incomes in the years ahead.
    Keywords: Fiscal and Tax Competitiveness, Economic Growth and Innovation, Canada, Canadian provinces, business investment, capital spending, new investment per worker, OECD countries
    JEL: E20
    Date: 2011–12
  11. By: Ruy Lama; Carlos Urrutia
    Abstract: We build a small open economy, real business cycle model with labor market frictions to evaluate the role of employment protection in shaping business cycles in emerging economies. The model features matching frictions and an endogenous selection effect by which inefficient jobs are destroyed in recessions. In a quantitative version of the model calibrated to the Mexican economy we find that reducing separation costs to a level consistent with developed economies would reduce output volatility by 15 percent. We also use the model to analyze the Mexican crisis episode of 2008 and conclude that an economy with lower separation costs would have experienced a smaller drop in output and in measured total factor productivity with no significant change in aggregate employment.
    Keywords: Business cycles , Economic models , Economic recession , Emerging markets , Employment , External shocks , Labor markets ,
    Date: 2011–12–15
  12. By: Paul Mizen; Serafeim Tsoukas
    Abstract: In this paper, we investigate the ability of a number of different ordered probit models to predict ratings based on firm-specific data on business and financial risks. We investigate models based on momentum, drift and ageing and compare them against alternatives that take into account the initial rating of the firm and its previous actual rating. Using data on US bond issuing firms rated by Fitch over the years 2000 to 2007 we compare the performance of these models in predicting the rating in-sample and out-of-sample using root mean squared errors, Diebold-Mariano tests of forecast performance and contingency tables. We conclude that initial and previous states have a substantial influence on rating prediction.
    Keywords: Credit ratings, probit, state dependence
    JEL: G24 G33 C25 C53
    Date: 2011–08
  13. By: Mark J. Roberts; Daniel Yi Xu; Xiaoyan Fan; Shengxing Zhang
    Abstract: In this paper we use micro data on both trade and production for a sample of large Chinese manufacturing firms in the footwear industry from 2002-2006 to estimate an empirical model of export demand, pricing, and market participation by destination market. We use the model to construct indexes of firm-level demand, cost, and export market profitability. The empirical results indicate substantial firm heterogeneity in both the demand and cost dimensions with demand being more dispersed. The firm-specific demand and cost components are very useful in explaining differences in the extensive margin of trade, the length of time a firm exports to a destination, and the number and mix of destinations, as well as the export prices, while cost is more important in explaining the quantity of firm exports on the intensive margin. We use the estimates to analyze the reallocation resulting from removal of the quota on Chinese footwear exports to the EU and find that it led to a rapid restructuring of export supply sources in favor of firms with high demand and low cost indexes.
    JEL: F1 L0
    Date: 2012–01
    Abstract: We assess whether and to what extent …nancial activity in the oil futures markets has contributed to destabilize oil prices in recent years. We de…ne a destabilizing …nancial shock as a shift in oil prices that is not related to current and expected fun- damentals, and thereby distorts e¢ cient pricing in the oil market. Using a structural VAR model identi…ed with sign restrictions, we disentangle this non-fundamental …- nancial shock from fundamental shocks to oil supply and demand to determine their relative importance. We …nd that shocks to oil demand and supply remain the main drivers of oil price swings. Financial investors in the futures market can however destabilize oil spot prices, although only in the short run. Moreover, …nancial ac- tivity appears to have exacerbated gyrations in the oil market over the past decade, particularly in 2007-2009.
    Keywords: Oil price, Speculation, Structural VAR, Sign restrictions.
    JEL: C32 Q41 Q31
    Date: 2011–11
  15. By: Andrés Fernández; Felipe Meza
    Abstract: Motivated by the fact that, over the business cycle, labor dynamics in emerging economies differ in nontrivial ways from those observed in developed economies, we assess the relative importance of trend shocks in emerging economies in the business cycle model of Aguiar and Gopinath (2007) when labor data is explicitly taken into account. We study Mexico and Canada as representatives of emerging and developed economies, respectively. We find for Mexico that, in the benchmark case with Cobb-Douglas preferences, the income effect on consumption of trend shocks is too strong, delivering countercyclical and counterfactual fluctuations in employment. The model faces a trade-off between, on the one hand, having sizeable growth shocks, thereby having a good match in terms of relatively high consumption volatility, and, on the other, having procyclical employment dynamics. This is remedied when both quasilinear preferences are assumed and the identification strategy explicitly takes into consideration labor dynamics. In this case trend shocks continue to be relatively stronger in emerging economies. Additionally, we find that differences in labor dynamics across emerging and developing economies are associated with the relatively large informal labor sector in emerging economies. It is in this dimension, when trying to match the dynamics of formal employment, that we find less evidence supporting an important role of trend shocks as being the main driving force of business cycles in emerging economies.
    Date: 2011–09–13
    Abstract: This paper empirically assesses whether knowledge networking affects the growth of small service firms. More specifically, using a large, unbalanced panel data set for the period 1992- 2009, we investigate whether participation in a knowledge network called PLATO is positively related to service firm growth. Our results show that knowledge networking has a highly significant positive effect on the growth in net assets and added value of service firms. Furthermore, we demonstrate that the positive effect of knowledge networking on firm growth is significantly larger for service than for manufacturing firms, indicating that industry drives networking success.
    Keywords: networking, growth, service sector, SME, knowledge
    Date: 2011–10
    Abstract: We examine the impact of distressed acquisitions on acquirer volatility and default risk for a worldwide sample of distressed firms using several risk measures. We find that, on average, absolute levels of historical and implied volatility do not change following a distressed acquisition. However, distressed acquisitions generate a significant increase in relative total, systematic and idiosyncratic volatility and default risk, hence risk rises for both shareholders and bondholders. In particular, we show that high market-to-book acquirers, frequent acquirers, low-risk acquirers, higher acquisition premia and deals closed during bull markets are associated with higher levels of post-acquisition risk. Interestingly, high-risk acquirers experience a significant reduction in volatility and default risk. Consequently, risk changes cannot exclusively be explained by transferring risk from distressed target to acquirer. Our results suggest that bidder pre-acquisition levels of performance and risk and market conditions affect the type of distressed acquisitions and consequently the risk effects in such transactions.
    Keywords: Distressed acquisitions; M&A; Default risk; Volatility; Risk factors
    Date: 2011–09
    Abstract: This paper studies the association between bootstrapping and startup growth. Bootstrapping reduces a startup’s dependence on financial investors, but may create new dependencies. Drawing upon resource dependence theory, we hypothesize that when bootstrapping does not create new strong dependencies it will benefit startup growth, especially when dependence from financial investors is high. However, when bootstrapping creates new strong dependencies it will constrain growth, especially when dependence from financial investors is low. We use a longitudinal database of 205 Belgian startups comprising data from both questionnaires and yearly financial accounts. Findings broadly confirm our hypotheses. Theoretical and managerial implications are discussed.
    Date: 2011–09
  19. By: Andrea Pozzi (EIEF)
    Abstract: I study the impact of e-commerce on competition in retail markets. Using scanner data from a large chain that markets grocery online and through traditional stores, I illustrate that selling online reduces the barrier of geographic differentiation and allows stealing business from competitors. Between 60% and 70% of the sales made online by the chain are stolen from other grocers, the rest coming from self cannibalization. I show that small stores are suffering the largest losses from this reallocation of market shares, as they were more heavily relying on geographic differentiation to survive the competitive pressure of big-box stores.
    JEL: D22 L21 L81
    Date: 2011
  20. By: Anna Menozzi; Fabrizio Erbetta; Giovanni Fraquelli; Davide Vannoni
    Abstract: This paper investigates the determinants of board compensation for a sample of Italian State Owned Enterprises (SOEs). To that purpose, we use a newly collected panel data of 106 local public utilities observed form 1994 through 2004, which includes detailed information on the boards of directors. During this period, the deregulation process inspired institutional interventions that forced utilities, traditionally owned by local municipalities, to change their juridical form and ownership structure, thereby facilitating the entrance of private investors. The corporate governance literature shows that such changes may exacerbate the agency conflicts between shareholders, top executives and the board. However, board compensation could reduce the agency costs by aligning the incentives of managers with the interests of shareholders. This paper addresses this issue by investigating the impact that board composition, firm characteristics and performance have on board compensation. We find that the average board pay is negatively related to board size and positively related to firm dimension. The public or private nature of the major shareholder does not influence board compensation but the juridical form does. Finally, while the proportion of politically connected directors is found to negatively influence the level of per capita compensation, the impact of firm performance is uncertain.
    Keywords: board compensation, board composition, politicians, local public utilities
    JEL: G34 J33 L97
    Date: 2011
  21. By: Jan Bena; Peter Ondko; Evangelia Vourvachaki
    Abstract: As part of the Single Market Program the European Commission commanded the liberalization and regulatory harmonization of utilities, transport and telecommunication services. This paper investigates whether and how this process affected the productivity of European network firms. Exploiting the variation in the timing and degree of liberalization efforts across countries and industries, we find that liberalization increased firm-level productivity but had no reallocation impact. Based on our estimates, the average firm-level productivity gain from liberalization amounts to 38 percent of the average total within-firm productivity gain in network industries. The results underscore the growth-promoting role of liberalization efforts.
    Keywords: productivity; liberalization; allocative efficiency; services; firm-level data;
    JEL: D24 K23 L11 L51
    Date: 2011–12
  22. By: Christian Dustmann (Department of Economics, University College London); Albrecht Glitz (Department of Economics and Business, Universitat Pompeu Fabra)
    Abstract: In this paper, we investigate how changes in the skill mix of local labor supply are absorbed by the economy. We distinguish between three adjustment mechanisms: through factor prices, through an expansion in the size of those production units that use the more abundant skill group more intensively, and through more intensive use of the more abundant skill group within production units. We investigate which of these channels is dominant. We contribute to the existing literature by analyzing these adjustments on the level of firms, rather than industries, and by assessing the role of new firms in the absorption process of labor supply shocks. Our analysis is based on administrative data, comprising the entirety of firms in Germany over a 10 year period. We find that, while factor price adjustments are important in the non-tradable sector, labor supply shocks do not induce factor price changes in the tradable sector. In this sector, most of the adjustment to changes in relative factor supplies takes place within firms by changing relative factor intensities. Given the non-response of factor prices, this finding points towards changes in production technology. Our results further show, that firms that enter and exit the market are an important additional channel of adjustment. Finally, we demonstrate that an industry level analysis is likely to over-emphasize technology-based adjustments.
    Keywords: Immigration, Endogenous Technological Change, Firm Structure
    JEL: F1 J2 J61 L2 O3
    Date: 2012–01
  23. By: Joachim Wagner (Institute of Economics, Leuphana University of Lüneburg, Germany)
    Abstract: Empirical investigations with enterprise level data from official statistics often use the average wage as a proxy variable for the qualification of the workforce, mostly due to the lack of detailed information on the qualification of the employees. This paper uses unique newly available data for German enterprises from the KombiFiD project that for the first time combine information from the statistics of employees covered by social security and information from surveys performed by the Statistical Offices to look at the quality of this proxy variable by investigating the link between the average wage in a firm and the qualification of the workforce. Furthermore, it demonstrates that detailed information on the qualification of the workforce sheds new light on the role of highly qualified employees for success on export markets that is not revealed by the average wage as a proxy variable. Based on the results of this paper it is argued that combined firm level data that stem from different data producers should be widely accessible for research.
    Keywords: Qualification of workforce, average wage, export, firm level data
    JEL: C81 F14 J31
    Date: 2012–01

This nep-bec issue is ©2012 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.