nep-bec New Economics Papers
on Business Economics
Issue of 2013‒03‒16
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. Hierarchies, the Small Firm Effect, and Entrepreneurship: Evidence from Swedish Microdata By Tåg, Joacim; Åstebro, Thomas; Tho, Peter
  2. Globalization of Monitoring Practices: The Case of American Influences on the Dismissal Risk of European CEOs By Oxelheim, Lars; Randoy, Trond
  3. Are Emerging Market Multinationals Milking Their Cross Border Acquisition Targets? A Study of Inbound Japanese and Korean M&As By Ralf Bebenroth; Martin Hemmert
  4. Gains from Offshoring? Evidence from U.S. Microdata By Monarch, Ryan; Park, Jooyoun; Sivadasan, Jagadeesh
  5. International Productivity Gaps and the Export Status of Firms: Evidence from France and Japan By Flora BELLONE; KIYOTA Kozo; MATSUURA Toshiyuki; Patrick MUSSO; Lionel NESTA
  6. Free Entry and Social Inefficiency under Co-opetition By Hattori, Keisuke; Yoshikawa, Takeshi
  7. Firm Size Distortions and the Productivity Distribution: Evidence from France By Luis Garicano; Claire LeLarge; John Van Reenen
  8. Institutional Change and Productivity Growth in China's Manufacturing 1998-2007: the Microeconomics of Creative Restructuring By Giovanni Dosi; Jiasu Lei; Xiaodan Yu
  9. Do Acquisitions Relieve Target Firms’ Financial Constraints? By Isil Erel; Yeejin Jang; Michael S. Weisbach
  10. Credit vs. demand constraints: the determinants of US firm-level investment over the business cycles from 1977 to 2011 By Christian Schoder

  1. By: Tåg, Joacim (Research Institute of Industrial Economics (IFN)); Åstebro, Thomas (HEC Paris); Tho, Peter (Goizueta Business School)
    Abstract: We explore whether the tendency for smaller firms to have fewer hierarchical layers explains the well-documented inverse correlation between firm size and the rate at which employees become business owners. Our analysis is based on a Swedish matched employer-employee dataset. Conditional on firm size, employees in firms with more layers are less likely to enter entrepreneurship, to become self-employed, and to switch to another employer. The effects of layers are much stronger for business creation than for jobswitching and they are stronger for entrepreneurship than for self-employment. However, hierarchies constitute only a partial explanation of the small firm effect. Potential explanations for the effects of layers are examined. Part of the effect appears to be due to preference sorting by employees, and part due to employees in firms with fewer layers having a broader range of skills.
    Keywords: Entrepreneurship; Employee mobility; Hierarchy; Rank; Small firm effect
    JEL: D20 J20 L26 M50
    Date: 2013–02–13
  2. By: Oxelheim, Lars (Research Institute of Industrial Economics (IFN)); Randoy, Trond (University of Agder)
    Abstract: This study examines globalization of monitoring practices by focusing on how American (U.S.) influences on European firms impact the dismissal risk for these firms' CEOs. Specifically, we argue that the stronger short term orientation of the American corporate governance system increase the dismissal performance sensitivity faced by European CEOs, indirectly and directly. The former materializes via European firms cross-listing on U.S. exchanges, the latter results from European firms hiring U.S. independent board members. Both influences are expected to result in increased dismissal performance sensitivity. Based on data from the 250 largest European publicly traded firms we find a significant increase in the dismissal sensitivity of poorly performing companies with American board members and a support for migration of American executive pay practice. However, no significant increase in dismissal performance sensitivity was identified from U.S. cross-listing. In line with our agency theory based prediction, this indicates an institutional contagion driven by the presence of U.S. board members on European corporate boards. To policy makers the message is that internationalization of boards should not be banned or restricted, since it provides owners with more options to influence the corporate governance of the firm.
    Keywords: Executive pay; CEO dismissal; Performance sensitivity; Foreign board membership
    JEL: G15 G18 G32 M14 M16 M52
    Date: 2013–03–05
  3. By: Ralf Bebenroth (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Martin Hemmert (RIEB, Kobe University (Japan) and Department of Economics and Korea University, School of Business (South Korea))
    Abstract: International strategic mergers and acquisitions (M&As) by emerging market multinationals (EMMs) are rapidly gaining importance. Whereas multinational firms from developed countries mostly invest abroad to leverage their existing assets, EMMs tend to seek strategic assets when investing in other countries. We examine the effect of M&As on the performance of acquired firms for 88 inbound M&As in Japan and Korea and find that the post-acquisition performance of Japanese and Korean firms being taken over by EMMs is worse when compared with firms being acquired by developed country multinationals. Our findings thus suggest that firms in Japan and Korea are better off being acquired by developed country multinationals than by EMMs.
    Date: 2013–02
  4. By: Monarch, Ryan (University of Michigan); Park, Jooyoun (Kent State University); Sivadasan, Jagadeesh (University of Michigan)
    Abstract: We construct a new linked data set with over one thousand offshoring events by matching Trade Adjustment Assistance program petition data to micro-data from the U.S. Census Bureau. We exploit this data to assess how offshoring impacts domestic firm-level aggregate employment, output, wages and productivity. A class of models predicts that more productive firms engage in offshoring, and that this leads to gains in output and (measured) productivity, and potential gains in employment and wages, in the remaining domestic activities of the offshoring firm. Consistent with these models, we find that offshoring firms are on average larger and more productive compared to non-offshorers. However, we find that offshorers suffer from a large decline in employment (32 per cent) and output (28 per cent) relative to their peers even in the long run. Further, we find no signicant change in average wages or in total factor productivity measures at affected firms. We find these results robust to a variety of checks. Thus we find no evidence for positive spillovers to the remaining domestic activity of firms in this large sample of offshoring events.
    Keywords: Outsourcing, employment, trade, productivity, firm performance
    JEL: F16 F14 F23
    Date: 2013–01–21
  5. By: Flora BELLONE; KIYOTA Kozo; MATSUURA Toshiyuki; Patrick MUSSO; Lionel NESTA
    Abstract: This paper provides new evidence on the international productivity gaps; this evidence is built from large scale firm-level data from the French and Japanese manufacturing industries. Our primary finding is that international productivity gaps are sensitive to the export status of firms. We establish that the productivity gap between French and Japanese exporters differs systematically from the average industry gap—this gap is wider in the industries in which Japan has a productivity lead and narrower in the industries in which France has a productivity lead. We relate this basic finding to the new models of international trade with heterogeneous firms. Under this framework, our data predict that Japanese firms, on average, face higher trade costs than French firms.
    Date: 2013–03
  6. By: Hattori, Keisuke; Yoshikawa, Takeshi
    Abstract: We investigate the social desirability of free entry in the co-opetition model in which firms compete in a homogeneous product market while sharing common property resources that affect market size or consumers' willingness to pay for products. We show that free entry leads to socially excessive or insufficient entry into the market in the case of non-commitment co-opetition, depending on the magnitude of "business stealing" and "common property" effects of entry. On the other hand, in the case of pre-commitment co-opetition, free entry leads to excess entry and a decline in the common property resources. Interestingly, in the latter case, the excess entry result of Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) holds even when there are no entry (set-up) costs for entrants. These results have important policy implications for entry regulations.
    Keywords: Excess entry; Free entry; Co-opetition; Entry regulations; Common property resource
    JEL: D43 L13 L51
    Date: 2013–03–06
  7. By: Luis Garicano; Claire LeLarge; John Van Reenen
    Abstract: We show how size-contingent laws can be used to identify the equilibrium and welfare effects of labor regulation. Our framework incorporates such regulations into the Lucas (1978) model and applies this to France where many labor laws start to bind on firms with exactly 50 or more employees. Using data on the population of firms between 2002 and 2007 period, we structurally estimate the key parameters of our model to construct counterfactual size, productivity and welfare distributions. With flexible wages, the deadweight loss of the regulation is below 1% of GDP, but when wages are downwardly rigid welfare losses exceed 5%. We also show, regardless of wage flexibility, that the main losers from the regulation are workers (and to a lesser extent large firms) and the main winners are small firms.
    JEL: J08 L11 L25 L51
    Date: 2013–02
  8. By: Giovanni Dosi; Jiasu Lei; Xiaodan Yu
    Abstract: This paper investigates firm-level dynamics of labour productivity in China's manufacturing sector over the 1998-2007. Underlying the aggregate evidence of dramatic growth of labour productivity, one observes a large, even if shrinking, intra-sectoral heterogeneity. A major process of both catching-up and dying out occurs among the least efficient ones. Furthermore, we explore the effect of the characteristics of firms according to the ownership and governance structure upon the productivity distributions. The transformation of domestic firms signicantly affects the decreasing dispersion of productivity. In essence the fast catching-up process entails more of a "creative restructuring" of domestic firms rather than sheer "creative destruction" and even less so an MNC-led drive.
    Keywords: Chinese industrial development, labour productivity distributions, catching-up, heterogeneity, corporate ownership
    Date: 2013–03–08
  9. By: Isil Erel; Yeejin Jang; Michael S. Weisbach
    Abstract: Managers often claim that an important source of value in acquisitions is the acquiring firm’s ability to finance investments for the target firm. This claim implies that targets are financially constrained prior to being acquired and that these constraints are eased following the acquisition. We evaluate these predictions on a sample of 5,187 European acquisitions occurring between 2001 and 2008, for which we can observe the target’s financial policies both before and after the acquisition. We examine whether target firms’ post-acquisition financial policies reflect improved access to capital. We find that the level of cash target firms hold, the sensitivity of cash to cash flow, and the sensitivity of investment to cash flow all decline significantly, while investment significantly increases following the acquisition. These effects are stronger in deals that are more likely to be associated with financing improvements. These findings are consistent with the view that acquisitions ease financial frictions in target firms.
    JEL: G32 G34
    Date: 2013–02
  10. By: Christian Schoder
    Abstract: The paper studies empirically how relative supply and demand conditions on the capital market affected US firm-level investment over the business cycles from 1977 to 2011. A dynamic econometric specification of capital accumulation including sales growth, Tobin's q, the cash flow-capital ratio and the cost of capital as covariates is fitted by a rolling window System GMM estimator using quarterly data on publicly traded US corporations in order to obtain time-varying coefficients. We find that the investment effects of the variables capturing the demand-side of the capital market, i.e. sales growth and Tobin's q, behave counter-cyclically, whereas this does not hold for the investment effects of supply-side variables such as cash flow or the cost of capital. Our results suggest that investment was typically driven by adverse demand rather than supply conditions on the capital market during the most severe recessions.
    Keywords: investment, credit constraints, business cycles, panel estimation, System GMM
    JEL: D22 E22 G32
    Date: 2013

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