nep-bec New Economics Papers
on Business Economics
Issue of 2013‒06‒16
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. Allocation and industry productivity: Accounting for firm turnover By Maliranta, Mika; Määttänen, Niku
  2. Firm Size Evolution and Outsourcing By Sasan Bakhtiari
  3. Is a VC Partnership Greater than the Sum of its Partners? By Michael Ewens; Matthew Rhodes-Kropf
  4. Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany By Raff, Horst; Wagner, Joachim
  5. Determinants of Decentralization within the Firm: Some Empirical Evidence from Spanish Small and Medium- Sized Enterprise By Pérez, Jessica Helen; Iranzo Sancho, Susana
  6. Signalling Rivalry and Quality Uncertainty in a Duopoly By Bester, Helmut; Demuth, Juri
  7. Do Acquisitions Relieve Target Firms' Financial Constraints? By Erel, Isil; Jang, Yeejin; Weisbach, Michael S.
  8. European spin-offs Origin, value creation, and long-term performance By Dmitri Boreiko; Maurizio Murgia
  9. Learning about CEO Ability and Stock Return Volatility By Pan, Yihui; Wang, Tracy Yue; Weisbach, Michael S.
  10. Importing, productivity and SMEs: firm-level evidence from the Netherlands By Marcel van den Berg

  1. By: Maliranta, Mika; Määttänen, Niku
    Abstract: Recent macroeconomic literature has stressed the importance of resource allocation between firms for aggregate productivity. An important issue, therefore, is how to measure allocative efficiency. We compare popular indicators of allocative efficiency, paying special attention to firm turnover. We first show how entering and exiting firms contribute to aggregate productivity and to the Olley-Pakes (OP) covariance component, which is currently the most popular measure of allocative efficiency. Our data cover essentially all firms and plants in the Finnish business sector. We then build a model of firm dynamics with endogenous turnover that is consistent with the main patterns of our empirical results and use it to test how well alternative indicators capture different allocation distortions. Our results demonstrate how and why commonly used indicators fail to capture certain distortions because of endogenous changes in firm turnover.
    Keywords: productivity; firm dynamics; reallocation
    JEL: E23 L16 O47
    Date: 2013–05–27
  2. By: Sasan Bakhtiari (School of Economics, the University of New South Wales)
    Abstract: This paper sheds new light on forces shaping the outsourcing decision by linking the decision to a certain form of non-linearity in overhead costs which divides a firm’s operation into small and large regimes. Marginal firms that find evolution into a large business too costly outsource in a bid to grow out of bounds instead of expanding internally. This process leads to a lumpy relationship between size and outsourcing, in which outsourcing is only practiced by narrow set of firms in the middle of the distribution. The theoretical implication for size distribution is a bunching of firms at the size where the transition to large regime takes place with a missing middle immediately following it. A panel of Australian small and medium-size firms is used to put the predictions to test with mostly supportive results. The findings open a new avenue to rethink growth and job creation amongst small businesses.
    Keywords: Small Business, Outsourcing, Management Organization, Size Distribution.
    JEL: C38 D2 L24 L6
    Date: 2013–07
  3. By: Michael Ewens; Matthew Rhodes-Kropf
    Abstract: This paper investigates whether individual venture capitalists have repeatable investment skill and to what extent their skill is impacted by the VC firm where they work. We examine a unique dataset that tracks the performance of individual venture capitalists’ investments across time and as they move between firms. We find evidence of skill and exit style differences even among venture partners investing at the same VC firm at the same time. Furthermore, our estimates suggest the partner’s human capital is two to five times more important than the VC firm’s organizational capital in explaining performance.
    JEL: G24 G30 G32 L26
    Date: 2013–06
  4. By: Raff, Horst (Christian-Albrechts-University of Kiel, Kiel Institute for the World Economy and CESifo); Wagner, Joachim (Leuphana University Lueneburg, CESIS, Royal Institute of Technology, Stockholm)
    Abstract: We examine how foreign ownership of a firm affects the variety of goods that the firm exports and the number of countries it trades with. We construct a simple theoretical model of how foreign ownership may affect these extensive margins of exports and take this model to data from Germany, one of the leading actors on the world market for goods. In line with theoretical predictions we find that foreign-owned firms do export more goods to more countries after controlling for firm size, productivity and industry affiliation. These differences between foreign-owned firms and domestically controlled firms are highly statistically significant, and they are large from an economic point of view, with foreign-owned firms exporting up to 39% more goods to up to 31% more countries.
    Keywords: International trade; foreign ownership; multinational enterprise; foreign direct investment; extensive margins of exports; Germany
    JEL: F14 F23
    Date: 2013–06–12
  5. By: Pérez, Jessica Helen; Iranzo Sancho, Susana
    Abstract: This paper examines empirically the determinants of decentralization of decision- making in the firm for small and medium-sized enterprises (SMEs) that tend to be highly centralized. By decentralization of decisions we mean the delegation of decision rights from the owner or manager to the plant supervisor or even to floor workers. Our findings show that the allocation of authority to basic workers or a team of workers depends on firm characteristics such as firm size, the use of internal networks or the number of workplaces, and workers characteristics, in particular, the composition of the laborforce in terms of education and seniority and whether or not workers receive pay incentives. External factors such as the intensity of competition and the firm s export intensity are also important determinants of the allocation of authority.
    Keywords: Empreses petites i mitjanes, Empreses -- Presa de decisions, 33 - Economia,
    Date: 2012
  6. By: Bester, Helmut; Demuth, Juri
    Abstract: This paper considers price competition in a duopoly with quality uncertainty. The established firm (the `incumbent') offers a quality that is publicly known; the other firm (the `entrant') offers a new good whose quality is not known by some consumers. The incumbent is fully informed about the entrant's quality. This leads to price signalling rivalry because the incumbent gains and the entrant loses if observed prices make the uninformed consumers more pessimistic about the entrant's quality. When the uninformed consumers' beliefs satisfy the `intuitive criterion' and the `unprejudiced belief refinement', prices signal the entrant's quality only in a two-sided separating equilibrium and are identical to the full information outcome.
    Keywords: Quality uncertainty; Signalling; Oligopoly; Price competition
    JEL: D43 D82 L15
    Date: 2013–05
  7. By: Erel, Isil (OH State University); Jang, Yeejin (OH State University); Weisbach, Michael S. (OH State University)
    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. While the evidence does not speak to whether easing of financial frictions is a pervasive motive for acquisitions, it is consistent with the view that acquisitions ease financial frictions in target firms, especially when the target firm is relatively small.
    JEL: G32 G34 L20
    Date: 2013–05
  8. By: Dmitri Boreiko (Free University of Bolzanoâ€Bozen, School of Economics and Management.); Maurizio Murgia (Free University of Bolzanoâ€Bozen, School of Economics and Management.)
    Abstract: This paper tests the empirical validity of theoretical predictions on corporate spin-offs motivations and ex-post performance. Using a unique data set of completed spinoffs in twelve European countries we show that spin-off decisions are frequently triggered by firm’s governance changes, such as the appointment of a new CEO or a takeover threat. Post-transaction long-run stock returns and operating performance are observed for spin-off firms only, and mostly for internally-grown business units and parent-related (non-focusing) subsidiaries. We find no evidence that post-spin-off mergers of either parents or subsidiaries enhance long-term performance, or that focus-increasing spin-offs lead to efficiency improvements.
    Keywords: Spin-offs; Long-run performance; European corporate finance.
    JEL: G14 G32 G34
    Date: 2013–06
  9. By: Pan, Yihui (University of UT); Wang, Tracy Yue (University of MN, Twin Cities); Weisbach, Michael S. (OH State University)
    Abstract: When there is uncertainty about a CEO's quality, news about the firm causes rational investors to update their expectation of the firm's profitability for two reasons: Updates occur because of the direct effect of the news, and also because the news can cause an updated assessment of the CEO's quality, affecting expectations of his ability to generate future cash flows. As a CEO's quality becomes known more precisely over time, the latter effect becomes smaller, lowering the stock price reaction to news, and hence lowering the stock return volatility. Thus, in addition to uncertainty about fundamentals, uncertainty about CEO quality is also a source of stock return volatility, which decreases over a CEO's tenure as the market learns the CEO's quality more accurately. We formally model this idea, and evaluate its implications using a large sample of CEO turnovers in U.S. public firms. Our estimates indicate that there is statistically significant and economically important market learning about CEO ability, even for CEOs whose appointments appear to be unrelated to their predecessors' performance. Also consistent with the learning model is the fact that the learning curve appears to be convex in time, and learning is faster when there is higher ex ante uncertainty about the CEO's ability and more transparency about the firm's prospects. Overall, uncertainty about management quality appears to be an important source of stock return volatility.
    JEL: G32 G34 M12 M51
    Date: 2013–02
  10. By: Marcel van den Berg
    Abstract: Constructing a comprehensive data set covering Dutch firms over the years 2002-2008 I am the first to investigate the relationship between trade status, firm size and firm-level productivity in the Netherlands, thereby focusing particularly on small and medium sized enterprises (SMEs). The empirical evidence can be summarized in four stylized facts. The productivity ranking by trade status of Dutch manufacturing firms in increasing order of productivity is: non-traders, importers, exporters and two-way traders. Firm size and being controlled by a company located abroad are positively associated with firm-level productivity. The results point in the direction of self-selection of more productive manufacturing firms into importing, particularly for firms that did not trade altogether prior to the import start and for build-up periods of two and three years towards the import start. I do not find evidence that firms become more productive after an import start because of learning effects. I find considerable heterogeneity in the productivity premia of trade along the firm size distribution. The results suggest that exporting is more complex than sourcing inputs internationally for small firms relative to larger firms.
    Keywords: Micro data, firm heterogeneity, imports, exports, productivity, the Netherlands
    JEL: D22 F14 F23
    Date: 2013–06

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