nep-bec New Economics Papers
on Business Economics
Issue of 2013‒06‒24
nine papers chosen by
Vasileios Bougioukos
Bangor University

  1. Endogenous firm creation and destruction over the business cycle By Masashige Hamano
  2. Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany By Horst Raff; Joachim Wagner
  3. How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size By Teresa C. Fort; John Haltiwanger; Ron S. Jarmin; Javier Miranda
  4. Structure and Behavior of Multi-product Firms: Evidence from India By Choi, Jangho; Gopinath, Munisamy
  5. Drivers of Entrepreneurship and Post-Entry Performance of Newborn Firms in Developing Countries By Quatraro, Francesco; Vivarelli, Marco
  6. Firm size and judicial efficacy: Evidence for the civil procedures in Spain By Miguel García-Posada; Juan S. Mora-Sanguinetti
  7. Improving Our Understanding of the Conduct and Performance of Cooperative Businesses Using Directed Acyclic Graphs By Pancharatnam, Padmaja; Park, John; Hagarman, Amy; Murch, Matt
  8. Price-Matching leads to the Cournot Outcome By Norovsambuu Tumennasan; Mongoljin Batsaikhan
  9. Ownership Structure and CEO Pay: Evidence from Member Owned Firms By Hueth, Brent

  1. By: Masashige Hamano (CREA, University of Luxembourg)
    Abstract: This paper revisits Schumpeterian destruction in a DSGE model based on monopolistic competition. Firms enter the market through a free entry condition and exit endogenously depending on their specific productivity level. The mechanism of endogenous destruction among heterogeneous firms is based on the probabilistic argument discussed in Melitz (2003). The models in the paper are successful in reproducing observed business cycle patterns for creation and destruction and other major economic variables. The models also feature typical characteristics of Schumpeterian economies as found in literature.
    Keywords: entry and exit, firm heterogeneity, the Schumpeterian destruction, business cycles
    JEL: D24 E23 E32 L11 L60
    Date: 2013
  2. By: Horst Raff (University of Kiel, Germany); Joachim Wagner (Leuphana University Lueneburg, Germany)
    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
  3. By: Teresa C. Fort; John Haltiwanger; Ron S. Jarmin; Javier Miranda
    Abstract: There remains considerable debate in the theoretical and empirical literature about the differences in the cyclical dynamics of firms by firm size. This paper contributes to the debate in two ways. First, the key distinction between firm size and firm age is introduced. The evidence presented in this paper shows that young businesses (that are typically small) exhibit very different cyclical dynamics than small/older businesses. The second contribution is to present evidence and explore explanations for the finding that young/small businesses were hit especially hard in the Great Recession. The collapse in housing prices accounts for a significant part of the large decline of young/small businesses in the Great Recession.
    Date: 2013–06
  4. By: Choi, Jangho; Gopinath, Munisamy
    Abstract: A central theme of international trade research has been the impact of trade liberalization on productivity. Early literature on this theme points out that trade liberalization brings resource/organizational adjustment across industries and this adjustment enhances productivity. A traditional comparative advantage or monopolistic competition model examines responses at the average, i.e. homogeneous firms. In recent years, heterogeneous firm models with a general equilibrium framework expand the debate to include organizational adjustment across firms. The productivity improvement in the heterogeneous-firms framework arises through organizational adjustments of industries or firms following trade liberalization. The exit of less efficient industries or firms and the transfer of their resources to more efficient industries or firms lead to improvements in industry or national productivity. A new strand of the heterogeneous firm literature is now considering explanations of productivity change arising from intra-firm resource reallocation in the presence of product heterogeneity. Under firm heterogeneity, a firm’s technology uses determine their productivity; technology usages include technologies adoption and efficient use of adopted technologies. However, recent literature points out that there is a possibility that intra-firm resource reallocation affect a firm’s productivity in addition to technology usages. The purpose of this study is to show whether intra-firm resource reallocation affects multi-product firms’ TFP. Intra-firm resource reallocation is made up of two components: the number of products a firm produces (product range), and the way a firm allocates input resource across products (skewness of production). For this study, TFP is measured using De Loecker’s (2011) approach adopting the Cobb-Douglas production and CES utility functions under multi-product firms and applying two-stage estimation procedure. The intra-firm resource reallocation and productivity link is examined through the testing of two hypotheses: (i) high productivity firms have larger revenue and larger product range than low productivity firms and (ii) discontinuing a product and (/or) skewing production toward a particular product increases TFP while adding a product and (/or) equalizing the production of all products decreases TFP. These hypotheses have three implications. First, TFP is positively correlated with both revenue and product range. However expanding product range decreases TFP due to increasing possibility of input resource misallocation. Second, a firm’s TFP depends not only on technology usages, but also on intra-firm resource reallocation. The product range and he way to allocate input resource across heterogeneous products also affect a firm’s TFP. In other words, aggregate TFP depends not only on organizational adjustment across industries or firms, but also on organizational adjustment within a firm. Finally, getting export status significantly increases multi-product firms’ productivity due to the relationship between intra-firm resource reallocation and productivity. For the empirical analysis, the production and finance accounts of the PROWESS database on Indian firms (31,100 firms with 213,134 observations; 3,844 products with 213,134 observations) are used. This unique database allows the study to focus on multi-product firms’ structure, productivity, product range, and skewness of production.
    Keywords: Multi-product firms, Productivity, Total factor productivity, Intra-firm resource reallocation, Misallocation, Industrial Organization, International Development, International Relations/Trade, Productivity Analysis,
    Date: 2013
  5. By: Quatraro, Francesco (University of Nice Sophia-Antipolis); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: The aim of this paper is to provide an updated survey of the "state of the art" in entrepreneurial studies, with a particular focus on developing countries (DCs). In particular, the same concept of "entrepreneurship" will be critically discussed, then moving to the institutional, macroeconomic and microeconomic conditions affecting the entry of new firms and the post-entry performance of newborn firms.
    Keywords: entrepreneurship, new firm, innovation, development
    JEL: L26 O12
    Date: 2013–05
  6. By: Miguel García-Posada (Banco de España and Universidad Carlos III de Madrid); Juan S. Mora-Sanguinetti (Banco de España)
    Abstract: The literature has found that the size of firms matters for innovation and productivity and, thus, for economic performance. It is therefore worth explaining why enterprises in Spain are small in international terms. Our findings indicate that the quality of the institutional environment plays a role. Specifically, this paper analyses the different channels through which the efficacy of Spanish courts may affect the size of the companies at the provincial level. Regarding the existing literature, this paper is innovative in several important respects. First, we disentangle the impact of judicial efficacy on average firm size by differentiating between the effect on the growth of incumbent firms (intensive margin) and the effect on entry and exit rates (extensive margin), finding clear evidence of the former but not of the latter. We do so by using a firm-level database of more than half a million companies and real data (not estimates) on judicial efficacy at the local level. Second, this paper is the first to analyse the relationship between firm size and the effectiveness of justice after the reform of the civil procedures in 2000. Finally, and most significantly, it is the first paper in the literature to analyse the specific impact of the various civil procedures, both at the declaratory and the executory stage. In general, we find that judicial efficacy has a positive effect on firm size, but it critically depends on the type of the procedure, something that the previous literature has overlooked. More specifically, judicial efficacy matters at the declaratory stage (e.g. when a debt is declared and recognised by a judge), while it does not have a significant impact on size at the executory stage.
    Keywords: firm size, judicial efficacy
    JEL: L25 K40 R12
    Date: 2013–02
  7. By: Pancharatnam, Padmaja; Park, John; Hagarman, Amy; Murch, Matt
    Abstract: A great deal of effort is devoted to the exploration of agribusiness firm behavior through survey instruments. Mainly in an attempt to understand the needs and desires of firms, such studies can improve the information available to marketers and other decision makers within an industry. The implications drawn from these studies might elicit discussions on “best practices” employed by successful firms. The data involved are typically a mixture of qualitative and quantitative variables and, not surprisingly, empirical analyses can give mixed results that are open to interpretation. A better understanding of the relationship among variables might improve structural analysis, however business theory is often vague in that regard. To help, we suggest the use of a less known methodology in the analysis of survey data, namely, the directed acyclic graph (DAG). We demonstrate its potential with an analysis of agricultural cooperative firms.
    Keywords: Agribusiness, Industrial Organization, Research Methods/ Statistical Methods,
    Date: 2013
  8. By: Norovsambuu Tumennasan (Department of Economics and Business, Aarhus University); Mongoljin Batsaikhan (Georgetown University)
    Abstract: We study the effects of price-matching in a duopoly setting in which each firm selects both its price and output, simultaneously. We show that the availability of a pricematching option leads to the Cournot outcome in this setting. This result is a stark contrast to the one obtained in the standard Bertrand competition that the market price in the presence of a price-matching option ranges from the monopolistic price to the Bertrand price. Our result suggests that the effect of price-matching depends on whether the output is a choice variable for the firms.
    Keywords: Price matching
    JEL: L00 D4
    Date: 2013–06–18
  9. By: Hueth, Brent
    Keywords: Financial Economics, Institutional and Behavioral Economics, Research and Development/Tech Change/Emerging Technologies, Research Methods/ Statistical Methods,
    Date: 2013–05

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