nep-bec New Economics Papers
on Business Economics
Issue of 2012‒11‒11
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement By Jörn Kleinert; Julien Martin; Farid Toubal
  2. The Supply of Skills in the Labor Force and Aggregate Output Volatility By Steven Lugauer
  3. Collusive market sharing with spatial competition By Kai Andree; Mike Schwan
  4. Inferior Factor in Cournot Oligopoly Revisited By Paolo Bertoletti; Pierre Von Mouche
  5. Managerial compensation contracts in quantity-setting duopoly By Iván Barreda-Tarrazona; Nikolaos Georgantzís; Constantine Manasakis; Evangelos Mitrokostas; Emmanuel Petrakis
  6. Does relationship matter? The choice of financial advisors By Francis, Bill B.; Hasan, Iftekhar; Sun , Xian
  7. Moral Hazard in Hierarchies and Soft Information By Angelucci, Charles; Russo, Antonio
  8. More than connectedness – Heterogeneity of CEO social network and firm value By Fang, Yiwei; Francis , Bill; Hasan, Iftekhar
  9. Punishment-Dominance Condition on Stable Two-Sided Matching Algorithms By Takuya Masuzawa
  10. Endogeneous Risk in Monopolistic Competition By Vladislav Damjanovic
  11. Are the Benefits of Export Support Durable? By Olivier Cadot; Ana M. Fernandes; Julien Gourdon; Aaditya Mattoo
  12. University Startups and Entrepreneurship: New Data, New Results By Richard Jensen

  1. By: Jörn Kleinert; Julien Martin; Farid Toubal
    Abstract: This paper uses micro-data on balance sheets, trade, and the nationality of ownership of firms in France to investigate the effect of foreign multinationals on business cycle comovement. We first show that foreign affiliates, which represent a tiny fraction of all firms, are responsible for a high share of employment, value added, and trade both at the national and at the regional levels. We also show that the distribution of foreign affiliates across regions differs with the nationality of the parent. We then show that foreign affiliates increase the comovement of activities between their region of location and their country of ownership. We find that intra-firm trade in intermediate inputs is a significant channel of influence of business cycle comovement. These findings suggest that a non-negligible part of business cycle comovement is driven by a few multinational companies, and that the international transmission of shocks is partly due to linkages between affiliates and their foreign parents.
    Keywords: Granularity, Business Cycles, Multinational Firms, Intra-firm Trade
    JEL: F23 F12 F4 F41
    Date: 2012–08
  2. By: Steven Lugauer (Department of Economics, University of Notre Dame)
    Abstract: The cyclical volatility of U.S. gross domestic product suddenly declined during the early 1980s and remained low for over 20 years. I develop a labor search model with worker heterogeneity and match-specific costs to show how an increase in the supply of high-skill workers can contribute to a decrease in aggregate output volatility. In the model, firms react to changes in the distribution of skills by creating jobs designed specifically for high-skill workers. The new worker-firm matches are more profitable and less likely to break apart due to productivity shocks. Aggregate output volatility falls because the labor market stabilizes on the extensive margin. In a simple calibration exercise, the labor market based mechanism generates a substantial portion of the observed changes in output volatility.
    Keywords: Business Cycles, Skill Supply, Demographics
    JEL: E32 J24
    Date: 2012–06
  3. By: Kai Andree; Mike Schwan
    Abstract: This paper develops a spatial model to analyze the stability of a market sharing agreement between two firms. We find that the stability of the cartel depends on the relative market size of each firm. Collusion is not attractive for firms with a small home market, but the incentive for collusion increases when the firm’s home market is getting larger relative to the home market of the competitor. The highest stability of a cartel and additionally the highest social welfare is found when regions are symmetric. Further we can show that a monetary transfer can stabilize the market sharing agreement.
    Date: 2012–10
  4. By: Paolo Bertoletti (Department of Economics and Management, University of Pavia); Pierre Von Mouche (Economics of Consumers and Households, Wageningen University)
    Abstract: We reconsider the recent work by [Oku10] on (possibly asymmetric) Cournotian firms with two production factors, one of them being inferior. It is shown there that an increase in the price of the inferior factor does raise equilibrium industry output. In addition of providing a simpler and more rigorous proof of such a result, we generalize it to the case of technologies with s = 2 factors and allow some firms not to use the inferior one.
    Date: 2012–10
  5. By: Iván Barreda-Tarrazona (LEE & Economics Department, Universitat Jaume I, Castellón, Spain); Nikolaos Georgantzís (GLOBE & Economics Department, University of Granada, Spain; LEE & Economics Department, Universitat Jaume I, Castellón-Spain; University of Portsmouth); Constantine Manasakis (University of Crete); Evangelos Mitrokostas (University of Portsmouth); Emmanuel Petrakis (University of Crete)
    Abstract: In the context of a quantity setting duopoly we experimentally test the ability of managerial compensation schemes to provide a commitment device leading to a more aggressive behavior in the product market. In line with our model, Relative Performance-based rewards are chosen more frequently than Profit-Revenue ones. Furthermore, output reacts to the contract terms in the expected way, although it tends to exceed the predicted levels. Other quantitative aspects of the model receive less support, especially because firm owners tend to use more balanced weights for their managers' induced objectives than the theory predicts. Overall, quantity setting behavior is more aggressive than the theory predicts.
    Keywords: Experimental economics; Oligopoly theory; Managerial delegation; Endogenous contracts
    JEL: D43 L21
    Date: 2012
  6. By: Francis, Bill B. (Lally School of Management and Technology, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Fordham University and Bank of Finland); Sun , Xian (Carey Business School, Johns Hopkins University)
    Abstract: Using a sample of U.S. mergers and acquisitions, this study evaluates how banking relationships influence acquirers’ choice of financial advisors. Specifically, it examines: i) acquirers’ previous relationships with advisors in various financial activities: M&A advisories, equity issuings and lending activities; ii) the optimism of analyst recommendations; and iii) how acquirers’ past satisfaction with their financial advisors determines the choice of financial advisors. Overall, the findings suggest that the influence of banking relationships on a firm’s choice of financial institutions is limited in the area of M&A advisory business. The implications from the traditional “relationship banking” studies may not be suitable to explain how firms choose advisors, due to the wide variety of practices in investment banking activities. The evidence portrays that firms with M&A experience are more likely to switch financial advisors with poor deal outcomes. Firms without M&A experience, on the other hand, are more likely to choose their underwriters as financial advisors, especially when they provide overly optimistic analyst coverage prior to the transactions.
    Keywords: mergers and acquisitions; financial advisors; relationship banking; analyst coverage; conflict of interests; proactive
    JEL: G10 G14 G24 G28 G31 G34
    Date: 2012–10–18
  7. By: Angelucci, Charles (Harvard University); Russo, Antonio (Doctorant TSE)
    Abstract: We investigate the scope for supervisory activities in organizations in which information is non-verifiable and opportunism severe. A principal-supervisor-agent hierarchy is considered. Side-contracts between supervisor and agent may be reached both before and after the agent has chosen his hidden action. We find that the supervisor is useful if and only if appointed before the agent has chosen his action. We also show that delegation of payroll authority is suboptimal. Finally, some insights concerning the optimal design of verification activities are provided: when information is non-verifiable, the supervisor should be employed as a monitor rather than as an auditor.
    Keywords: collusion, extortion, delegation, mechanism design
    Date: 2012–10
  8. By: Fang, Yiwei (Lally School of Management and Technology, Rensselaer Polytechnic Institute); Francis , Bill (Lally School of Management and Technology, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Fordham University and Bank of Finland Research)
    Abstract: This paper examines through various channels the effects of CEO social network heterogeneity on firm value. We construct four measures of heterogeneity based on demographic attributes, intellectual backgrounds, professional experience, and geographical exposures of individuals in the CEO social network. We find that CEO social network heterogeneity leads to higher Tobin's Q of firms. Greater CEO social network heterogeneity also leads to: (i) more innovation, (ii) more foreign sales growth, (iii) higher investment sensitivity to Tobin’s Q, and (iv) better M&A performance. Overall, our results indicate that CEO social network heterogeneity is an aspect of CEO social capital and soft skills that deserves the attention of shareholders.
    Keywords: CEO; social networks; corporate finance policy decisions; firm value
    JEL: D71 G30 G32 Z10
    Date: 2012–08–20
  9. By: Takuya Masuzawa (Faculty of Economics, Keio University)
    Abstract: In this article, we consider a many-to-one two-sided matching market and define a canonical strategic form game, in which any worker applies to the top k firms and is assigned to the most preferred firm that does not reject him/her. Under the substitute property of firms' preferences, the game satisfies the punishment-dominance condition. The deferred-acceptance algorithm by Gale and Shapley (Amer. Math. Monthly 69: 1962), which finds the maximum and minimum of stable matchings, is described as an instance of the algorithm by Masuzawa (Int. Jour. Game Theory 38: 2008), which determines the α-cores of the strategic form games with the punishment-dominance condition.
    Date: 2012–10
  10. By: Vladislav Damjanovic (Department of Economics, University of Exeter)
    Abstract: We consider a model of financial intermediation with a monopolistic competition market structure. A non-monotonic relationship between the risk measured as a probability of default and the degree of competition is established.
    Keywords: Competition and Risk, Risk in DSGE models, Bank competition; Bank failure, Default correlation, Risk-shifting effect, Margin effect.
    JEL: G21 G24 D43 E13 E43
    Date: 2012
  11. By: Olivier Cadot; Ana M. Fernandes; Julien Gourdon; Aaditya Mattoo
    Abstract: This paper evaluates the effects of the FAMEX export promotion program in Tunisia on the performance of beneficiary firms. While much of the literature assesses only the short term impact of such programs, we consider also the longer term impact. Propensity-score matching difference-in-difference and weighted least squares estimates suggest that beneficiaries initially see faster export growth and greater diversification across destination markets and products. However, three years after the intervention, neither the growth rates nor the export levels of beneficiaries are significantly different from those of non-beneficiary firms. Exports of beneficiaries remain more diversified, but the diversification does not translate into lower volatility of exports. There is also no evidence that the program produced spillover benefits for non-beneficiary firms. Taken together, these results suggest that export promotion programs may in some cases induce firms to diversify without creating other durable benefits.
    Keywords: Export promotion;firms;export margins;Tunisia;impact evaluation;propensity-score matching;matching grant
    JEL: F13 F14 L15 L25 O17
    Date: 2012–11
  12. By: Richard Jensen (Department of Economics, University of Notre Dame)
    Abstract: This paper empirically examines commercialization of university faculty inventions through startup firms from 1994 through 2008. Using data from the Association of University Technology Managers and the 2010 NRC doctoral rankings, our research reveals several findings. We find that university entrepreneurship is more common in bad economic times and that engineering department quality and biological sciences department size are more important after the NASDAQ stock market crash in 2000. We also find that the quality of a biological sciences department is positively associated with startup company activity. Conditional on creating one startup, each additional TTO employee significantly increases university startups.
    Keywords: Startups, Entrepreneurship, Innovation
    JEL: I23 M13 O31
    Date: 2012–07

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