nep-bec New Economics Papers
on Business Economics
Issue of 2012‒12‒10
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Partial collusion in an asymmetric duopoly By Marc Escrihuela Villar
  2. Which Pay for what Performance? Evidence from Executive Compensation in Germany and the United States By Moritz Heimes; Steffen Seemann
  3. What do we know about China's CEO's?: evidence from across the whole economy . By Bryson, Alex; Zhou, Minghai
  4. Cross-Border Mergers and Greenfield Foreign Direct Investment By Ignat Stepanok
  5. Employment Policies, Hiring Practices and Firm Performance By Blasco, Sylvie; Pertold-Gebicka, Barbara
  6. Assets or Liabilities of Foreignness? On the Role of TNCs in International Business By Joerg Freiling; Sven M. Laudien
  7. Unbundling Technology Adoption and TFP at the Firm Level. Do Intangibles Matter? By Michele Battisti; Filippo Belloc; Massimo Del Gatto
  8. Bayesian Nash Equilibrium in ''Linear'' Cournot Models with Private Information About Cost By Sjaak Hurkens
  9. Carbon management: Evidence from case studies of German firms under the EU ETS By Heindl, Peter; Lutz, Benjamin
  10. Defensive Disclosure under Antitrust Enforcement By Ajay Bhaskarabhatla; Enrico Pennings
  11. Heterogeneous Enterprises in a Macroeconomic Agent-Based Model By Cornelia Metzig; Mirta Gordon
  12. An investigation into medium-sized multinational enterprises By Musca, Maria; Schilirò, Daniele
  13. Assessing the determinants of Firms’ Competitiveness in Greece: A Structural Equation Modeling Analysis By Metaxas, Theodore; Economou, Athina
  14. Sequential vs Collusive Payoffs in Symmetric Duopoly Games By Marco Marini; Giorgio Rodano

  1. By: Marc Escrihuela Villar (Universitat de les Illes Balears)
    Abstract: In this paper we investigate the connection between cost asymmetries and the sustainability of collusion within the context of a infinitely repeated Cournot duopoly. We assume that firms are able to coordinate on distinct output levels than the unrestricted joint profit maximization outcome. We show that, in our model, regardless of the degree of cost asymmetry, at least some collusion is always sustainable if firms are patient enough. We also endogenize the degree of collusion and show that it has an upper bound determined by the most inefficient firm.
    Keywords: Collusion; Sustainability; Asymmetry
    JEL: L11 L13 L41 D43
    Date: 2012
  2. By: Moritz Heimes (Department of Economics, University of Konstanz, Germany); Steffen Seemann (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper analyzes executive compensation in German and U.S. corporations for the period 2005-2009 including the financial crisis. We analyze the impact of stock market performance and accounting-based measures of firm performance on different compensation components. We find that only firm earnings explain total executive compensation in both samples while stock market performance does not. Cash bonus payments of German executives are explained by firm earnings and not by stock returns while U.S. bonuses are also determined by stock returns. Moreover, the sensitivity of cash bonuses to firm performance depends on firm risk and firm size. We also provide evidence that firms choose performance measures with low volatility. Finally, we find that pay-performance sensitivities are higher in the U.S. than in Germany, but have no robust explanation how long-term compensation such as company stock and options is granted in either country.
    Keywords: Pay for Performance, Executive Comepensation, Incentives
    JEL: G30 J33 M12
    Date: 2012–11–23
  3. By: Bryson, Alex; Zhou, Minghai
    Abstract: All that we know about the CEO labour market in China comes from studies of public listed companies and state-owned enterprises (SOEs). This paper is the first to examine the operation of the CEO labour market across all sectors of the Chinese economy. We do so using World Bank enterprise data for the first part of the 21st Century. Incentive schemes are commonplace throughout the economy and include contracts linking CEO pay directly to firm performance, annual bonus schemes, the posting of performance bonds, and holding company stock. These incentive mechanisms appear to complement rather than substitute for one another. The elasticity of pay with respect to company performance is one or more in two-fifths of the cases where CEO's have performance contracts, suggesting many face high-powered incentives. CEO's also face a real dismissal threat and financial penalties if they fail to deliver. Incentive contracts are used to attract the most talented executives, as indicated by educational attainment and position in the Communist Party. However, government involvement in the appointment of a CEO reduces the likelihood that the CEO will receive an incentives-based contract, perhaps because governments appoint "bureaucrats" to perform roles which incorporate social and political as well as economic goals. Firms with good corporate governance are more likely to deploy incentive contracts. A picture emerges of a well-functioning labour market for executives in China that exhibits many of the traits common to CEO labour markets in the West.
    Date: 2012–09
  4. By: Ignat Stepanok
    Abstract: I present a model of international trade and foreign direct investment (FDI), where FDI is comprised of greenfield FDI and mergers and acquisitions (M&A). Working in a monopolistically competitive environment, merging firms do not reduce competition. Mergers are motivated by efficiency gains and transfer of technology and expertise. Following empirical evidence, I model greenfield investors as the more productive group relative to M&A firms, which are in turn more productive than exporters. The model has two symmetric countries and generates two-way flows of both M&A and greenfield FDI. Greater proximity to a market makes more firms choose greenfield FDI over M&A when investing there. Empirical evidence supports this result
    Keywords: Foreign direct investment, mergers, acquisitions, greenfield, firm heterogeneity
    JEL: F12 F23
    Date: 2012–11
  5. By: Blasco, Sylvie (GAINS, Université du Maine); Pertold-Gebicka, Barbara (Aarhus University)
    Abstract: In this paper we investigate how active labour market policy programmes affect firms' hiring strategies and, eventually, firms' performance. We focus on counseling and monitoring which may reduce search costs for employers, but which may have ambiguous effect on the employer-employee matching quality and thus on firms' performance. Using a large scale experiment which was conducted in Denmark in 2005-2006 and induced a greater provision of activation, we find that small firms hiring in the districts where the social experiment was conducted changed their hiring practices in favor of unemployed workers and experienced greater turnover than the other firms. Treated firms also experienced no change or a marginal reduction in value added and total factor productivity during the first years after the experiment. These results are consistent with the idea that monitoring creates compulsion effects which counteract the possible improvement in the matching process expected from job search assistance.
    Keywords: active labour market programmes, counseling and monitoring, hiring decisions, firms performance
    JEL: C21 J63 J68
    Date: 2012–11
  6. By: Joerg Freiling (University of Bremen - Faculty of Business Studies and Economics & ZenTra); Sven M. Laudien (Otto von Guericke University Magdeburg & ZenTra)
    Abstract: Cross-border activities of firms are said to be risky and complicated due to so-called 'liabilities of foreignness' (LOF) (Zaheer & Mosakowski 1997; Zaheer 1995). These LOF are difficulties firms in general have to face when acting in environments they are not familiar with. The existence of LOF seems to delimit the scope of action of firms by triggering a need to adapt to the foreign business environment. Focusing on transnational companies (TNCs) - a specific firm type in international business that is a kind of 'footloose' and not deeply embedded in its country of origin (Bartlett & Ghoshal 1989) - it is necessary to understand the influence LOF have on business operations in detail as TNCs face LOF in every business environment they enter. Although we acknowledge the existence of LOF and their influence on TNC business operations, we argue that TNCs are by owning 'assets of foreignness' (AOF) (Nachum, 2010) able to overcome the barriers set by LOF. We rely on the competence-based theory of the firm (CbTF) (Freiling et al. 2008; Foss & Ishikawa 2007) as frame of reference and ask: What kinds of AOF do TNCs own and how far do these assets enable TNCs to overcome LOF? Against this background we identify first causalities that determine the TNC scope of action. Our paper contributes to research by challenging the adaption logic that is very often broadcasted in discussions on reasonable ways companies should react to LOF. It advances research by giving reasons why TNCs may be able to outperform local companies in their local home markets.
    Keywords: Liabilities of Foreignness, Assets of Foreignness, Transnational Companies, Competencebased Theory of the Firm
    JEL: D21 D82 D83 F23 L10 L22
    Date: 2012–10
  7. By: Michele Battisti (University of Palermo, Italy; CeLEG LUISS Guido Carli, Italy; RCEA, Italy); Filippo Belloc ("G.d'Annunzio" University, Italy); Massimo Del Gatto ("G.d'Annunzio" University; CRENoS, Italy)
    Abstract: We use a panel of European firms to investigate the relationship between intangible assets and productivity. We disentangle between tfp and technology adoption, while available studies so far have considered only a notion of productivity con ating the two effects. To this aim, we estimate production function parameters allowing, within each sector, for the existence of multiple technologies. We find that intangible assets both push the firm towards better technologies (technology adoption effects) and allow for a more efficient exploitation of a given technology (tfp effects).
    Keywords: TFP, intangible assets, firm heterogeneity, firm selection, technology adoption, mixture models
    JEL: C29 D24 F12 O32
    Date: 2012–11
  8. By: Sjaak Hurkens
    Abstract: Calculating explicit closed form solutions of Cournot models where firms have private information about their costs is, in general, very cumbersome. Most authors consider therefore linear demands and constant marginal costs. However, within this framework, the nonnegativity constraint on prices (and quantities) has been ignored or not properly dealt with and the correct calculation of all Bayesian Nash equilibria is more complicated than expected. Moreover, multiple symmetric and interior Bayesian equilibria may exist for an open set of parameters. The reason for this is that linear demand is not really linear, since there is a kink at zero price: the general ''linear'' inverse demand function is P (Q) = max{a - bQ, 0} rather than P (Q) = a - bQ.
    Keywords: Cournot, Private Information, Bayesian Nash equilibrium
    JEL: C72 D43 D82
    Date: 2012–12–03
  9. By: Heindl, Peter; Lutz, Benjamin
    Abstract: This paper examines the management practices of German firms with obligations under the EU Emissions Trading Scheme (EU ETS) based on six structured in-depth interviews with managers of firms from different industries and based on survey data. The paper sheds light on management and trading practices, abatement behaviour, and the impact of the EU ETS on long-term decisions, such as investment decisions or innovative capacity. The aim is to provide information on firm-internal management processes related to the EU ETS and to strengthen intuition for microeconomic consequences of greenhouse gas regulation in a cap-and-trade scheme. The analysis reveals that management practices in the EU ETS are mainly driven by emission levels, firm size, pre-existing management structures and production patterns. While larger emitters (about 100,000 tCO2 per year or larger) are perfectly capable to carry out all relevant tasks, smaller emitters behave more passively due to transaction costs and lower expected return of transactions. Our analysis suggests that institutional responds to regulation should be taken into account for the design of greenhouse gas regulation. --
    Keywords: Carbon Management,Emissions Trading,EU ETS
    JEL: L60 Q50 M11
    Date: 2012
  10. By: Ajay Bhaskarabhatla; Enrico Pennings
    Abstract: We formulate a simple model of optimal defensive disclosure by a dominant firm facing uncertain antitrust enforcement and test its implications using unique data on defensive disclosures and patents by IBM. Our results indicate that stronger antitrust enforcement leads to more defensive disclosure, that quality inventions are also disclosed defensively, and that defensive disclosure served as an alternative, but less successful, mechanism to patenting at IBM in appropriating returns from R&D. We extend our analysis to two other exceptionally large firms with defensive-disclosure activity, AT&T and Xerox, and show that their patenting propensity declined under increased antitrust enforcement relative to other firms in the industry. Overall, we show how these firms used defensive disclosure as a strategy to balance the benefits of patenting with the costs of uncertain antitrust enforcement.
    Date: 2012
  11. By: Cornelia Metzig; Mirta Gordon
    Abstract: We present a macroeconomic agent-based model that combines several mechanisms operating at the same timescale, while remaining mathematically tractable. It comprises enterprises and workers who compete in a job market and a commodity goods market. The model is stock-flow consistent; a bank lends money charging interest rates, and keeps track of equities. Important features of the model are heterogeneity of enterprises, existence of bankruptcies and creation of new enterprises, as well as productivity increase. The model's evolution reproduces empirically found regularities for firm size and growth rate distributions. It combines probabilistic elements and deterministic dynamics, with relative weights that may be modified according to the considered problem or the belief of the modeler. We discuss statistical regularities on enterprises, the origin and the amplitude of endogeneous fluctuations of the system's steady state, as well as the role of the interest rate and the credit volume. We also summarize obtained results which are not discussed in detail in this paper.
    Date: 2012–11
  12. By: Musca, Maria; Schilirò, Daniele
    Abstract: The paper provides an investigation of medium-sized Italian industrial enterprises that have become multinational companies. It concetrates on the set of medium and medium-large enterprises who seem to grow more in foreign markets, either through exports or through foreign direct investment. The work also offers an empirical descriptive picture of the performance of medium-sized Italian multinationals, which is compared with the performance of large corporations. From this analysis, which is based on a number of sources, it is possible to outline a profile regarding the medium-size italian multinational enterprises, as to understand the complex strategy towards internationalization of these companies, where the dimension of production is important and, therefore, innovation has a key role. But where also the commercial dimension is crucial, because it leads to point to the direct supervision of foreign markets and to look very carefully to customers, offering them a wide range of services. Finally, the paper points out some critical issues that the medium sized multinational enterprises have to face to compete such as the stagnant productivity, the high taxation, the insufficient institutional support for internationalization, the bureaucracy and its high costs, the lack of skilled human capital available in the labor market due to inadequate policy training.
    Keywords: medium-sized Italian enterprises; multinational companies; innovation; internationalization
    JEL: L16 F23 O30 L10
    Date: 2012–10
  13. By: Metaxas, Theodore; Economou, Athina
    Abstract: The paper investigates the importance of territorial characteristics/assets (i.e. agglomeration economies, urban infrastructure, factors of labor and cost, development policies, qualitative factors, inter alia) on small- and medium-sized firms’ competitiveness. The analysis uses primary data from 204 small- and medium-sized firms located in Thessaloniki (Greece). These firms operate in the sectors of industry, commerce and services. Through the use of Structural Equation Modeling (SEM) analysis, the importance of particular factors for the competitiveness of firms has been analyzed, coming out in valuable conclusions not only for the firms and the city of Thessaloniki considered but also for firms and areas with similar characteristics in Greece and the wider area of Balkans.
    Keywords: firms’ competitiveness; territorial characteristics/assets; Structural Equation Modeling (SEM) analysis; Greece
    JEL: R50 O18 R11
    Date: 2012
  14. By: Marco Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Giorgio Rodano (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")
    Abstract: In many strategic settings comparing the payo¤s obtained by players under full cooperation to those obtainable at a sequential (Stackelberg) equilibrium can be crucial to determine the nal outcome of the game. This happens, for instance, in repeated games in which players can break cooperation by acting sequentially, as well as in merger games in which rms are allowed to sequence their actions. Despite the relevance of these and other applications, no fully-edged comparisons betwen collusive and sequential payo¤s have been performed so far. In this paper we show that even in symmetric duopoly games the ranking of cooperative and sequential payo¤s can be extremely variable, particularly when the consuete linear demand assumption is relaxed. Not surprisingly, the degree of strategic complementarity and substitutability of playersactions (and, hence, the slope of their best-replies) appears decisive to determine the ranking of collusive and sequential payo¤s. Some applications to endogenous timing are discussed.
    Keywords: Sequential Payoffs; Collusion; Duopoly Games
    Date: 2012–06

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