|
on Business Economics |
| By: | Marc J. Melitz (Department of Economics); Stephen J. Redding (Princeton University) |
| Abstract: | We examine how firm heterogeneity influences aggregate welfare through endogenous firm selection. We consider a homogeneous firm model that is a special case of a heterogeneous firm model with a degenerate productivity distribution. Keeping all structural parameters besides the productivity distribution the same, we show that the two models have di↵erent aggregate welfare implications, with larger welfare gains from reductions in trade costs in the heterogeneous firm model. Calibrating parameters to key U.S. aggregate and firm statistics, we find these differences in aggregate welfare to be quantitatively important (up to a few percentage points of GDP). Under the assumption of a Pareto productivity distribution, the two models can be calibrated to the same observed trade share, trade elasticity with respect to variable trade costs, and hence welfare gains from trade (as shown by Arkolakis, Costinot and Rodriguez-Clare, 2012); but this requires assuming different elasticities of substitution between varieties and different fixed and variable trade costs across the two models. |
| Keywords: | firm heterogeneity, welfare gains from trade |
| JEL: | F12 F15 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/7o52iohb7k6srk09n8t832o04&r=bec |
| By: | Jerónimo Carballo; Gianmarco I. P. Ottaviano; Christian Volpe Martincus |
| Abstract: | We use highly disaggregated firm-level export data from Costa Rica, Ecuador, and Uruguay over the period 2005-2008 to provide a precise characterization of firms' export margins, across products, destination countries, and crucially customers. We show that a firm's number of buyers and the distribution of sales across them systematically vary with the characteristics of its destination markets. While most firms serve only very few buyers abroad, the number of buyers and the skewness of sales across them increases with the size and the accessibility of destinations. We develop a simple model of selection with heterogeneous buyers and sellers consistent with these findings in which tougher competition induces a better alignment between consumers' ideal variants and firms' core competencies. This generates an additional channel through which tougher competition leads to higher productivity and higher welfare and hints at an additional source of gains from trade as long as freer trade fosters competition. |
| Keywords: | Buyer margins, market segmentation, competition, markupsbuyer margins, market segmentation, competition, markups |
| JEL: | F12 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1234&r=bec |
| By: | Erich Battistin (University of Padova); Paolo Bortoluzzi (University of Padova); Fabio Buttignon (University of Padova); Martina Serafini (University of Padova); Marco Vedovato (University of Venice) |
| Abstract: | This paper investigates the differential effects on performance of majority and minority Private Equity (PE) investments. By using a difference in difference approach, we compare a sample of 191 firms in the years following the PE investment with a control group constituted by firms that are the most similar to targets in the years preceding the deal. We find that, in the three years following PE investments, targets achieve higher profitability, higher sales and employ more than their control counterparts, and this is more so for minority deals. We also show that PE targets experience a significantly higher board turnover than controls, and that changes are more pronounced in majority investments where both the CEO and the chairman are replaced. Moving to targets ownership types, we find that PEs are especially effective when they acquire a minority interest in family firms or, to some extent, when they take a majority stake in non-family firms. These results suggest that when dealing with family firms PEs are particularly beneficial when they tend to complement rather than substitute the incumbent human capital, namely the entrepreneurs/owners serving as CEO or chairman before the PE steps in. |
| Keywords: | Private Equity, Minority Investments, Private Firms, Firm Performance, Corporate Governance. JEL: G32, G34. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0167&r=bec |
| By: | Lee Biggerstaff; David C. Cicero; Andy Puckett |
| Abstract: | We show that firms with CEOs who personally benefitted from options backdating were more likely to engage in other forms of corporate misbehavior, suggestive of an unethical corporate culture. These firms were more likely to overstate firm profitability and to engage in less profitable acquisition strategies. The increased level of corporate misbehaviors is concentrated in firms with suspect CEOs who were outside hires, consistent with adverse selection in the market for chief executives. Difference-in-differences tests confirm that the propensity to engage in these activities is significantly increased following the arrival of an outside-hire ‘suspect’ CEO, suggesting that causation flows from the top executives to the firm. Finally, while these suspect CEOs appear to have avoided market discipline when the market was optimistic, they were more likely to lose their jobs and their firms were more likely to experience dramatic declines in value during the ensuing market correction. |
| JEL: | G3 G34 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19261&r=bec |
| By: | Lucie Courteau (Free University of Bozen-Bolzano, School of Economics and Management, Italy.); Jennifer L. Kao (Department of AMIS, University of Alberta, Edmonton, Alberta, Canada.); Yao Tian (Department of Accounting and Finance, San Jose State University, San Jose, CA, USA.) |
| Abstract: | This study examines empirically how the presence of accrual management may affect firm valuation. We compare the performance of earnings-based and non-earnings-based valuation models, represented by Residual Income Model (RIM) and Discounted Cash Flow (DCF), respectively, based on the absolute percentage pricing and valuation errors for two subsets of US firms: “Suspect” firms that are likely to have engaged in accrual management and “Normal” firms matched on industry, year and size. Results indicate that RIM enjoys an accuracy advantage over DCF when accrual management is not a serious concern. However, the presence of accrual management significantly narrows RIM’s accuracy advantage over DCF from the level observed for the matched Normal firms. These results are robust to the choice of model benchmark (i.e., current stock price vs. ex post intrinsic value), alternative definitions of Suspect (i.e., loss or earnings-decline avoidance vs. earnings-decline avoidance only vs. loss avoidance only) and of Normal firms (i.e., excluding vs. including real activity manipulators), and different assumptions about post-horizon growth (i.e., 2% vs. 4%). The overall conclusion that accrual management impairs RIM’s performance extends to settings where the regression model is expanded to include accrual components and when we focus on large, rather than small, earnings manipulators. Taken together, these results highlight the importance of considering earnings quality when assessing the performance of earnings-based valuation models. |
| Keywords: | Accrual Management; Firm Valuation; Earnings- and Non Earnings-based Valuation Models; Valuation Errors. |
| JEL: | M41 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps12&r=bec |
| By: | E. Santarelli; H. T. Tran |
| Abstract: | This paper is based upon the assumption that firm profitability is determined by its degree of diversification which in turn is strongly related to the antecedent decision to carry out diversification activities. This calls for an empirical approach that permits the joint analysis of the three interrelated and consecutive stages of the overall diversification process: diversification decision, degree of diversification, and outcome of diversification. We apply parametric and semiparametric approaches to control for sample selection and endogeneity of diversification decision in both static and dynamic models. After controlling for industry fixed-effects, empirical evidence from firm-level data shows that diversification has a curvilinear effect on profitability: it improves firms’ profit up to a point, after which a further increase in diversification is associated with declining performance. This implies that firms should consider optimal levels of product diversification when they expand product offerings beyond their core business. Other worth-noting findings include: (i) factors stimulating firms to diversify do not necessarily encourage them to extend their diversification strategy; (ii) firms which are endowed with highly skilled human capital are likely to successfully exploit diversification as an engine of growth; (iii) while industry performance does not influence profitability of firms, it impacts their diversification decision and degree. |
| JEL: | L21 L25 C14 C23 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp896&r=bec |
| By: | Henri de Groot; Jan Möhlmann |
| Abstract: | International outsourcing is an important aspect of economic globalization. Since outsourcing leads to more specialization, it is expected to reduce production costs and to increase productivity. <span>This study uses microdata on Dutch firms to investigate the effects of international and domestic outsourcing on firm productivity at the firm level. It is based on a unique survey on outsourcing covering the period 2001–2006. The survey allows us to distinguish between domestic and international outsourcing and between outsourcing of core and support activities. We study the effects of these different types of outsourcing on labour productivity and total factor productivity (TFP). The results show that, without adjusting for firm size, more productive firms are more likely to outsource. When we adjust for firm fixed effects, the results suggest that international outsourcing of core functions decreased TFP and domestic outsourcing of support functions increased TFP.</span> |
| JEL: | L24 D24 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:250&r=bec |
| By: | Travis Berge |
| Abstract: | This paper evaluates the ability of several commonly followed economic indicators to predict business cycle turning points. As a baseline, forecasts from univariate models are combined by taking averages or by weighting forecasts with model-implied posterior probabilities. These combined forecasts are compared to those from a sophisticated model selection algorithm that allows for nonlinear model speci_cations. The preferred forecasting model is one that allows for nonlinear behavior across the business cycle and combines information from the yield curve with other indicators, especially at very short and very long horizons. |
| Keywords: | Recessions ; Economic indicators ; Business cycles |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp13-05&r=bec |
| By: | K.V. Ramaswamy (Indira Gandhi Institute of Development Research) |
| Abstract: | Labour regulations like employment protection legislation in India are size-dependent rules and therefore constitute a basis for threshold effects. Firms could use non-permanent workers to stay below the legal establishment size threshold of 100 workers. This strategy is expected to cause the ratio of non-permanent to total workers to peak at size close to the legal threshold size. The study is based on a large nationally representative unbalanced panel of manufacturing plants in the formal sector covering 25 states and 5 union territories of India spanning the period 1998-2008. The average contract-worker intensity of factories in size group 50-99 is found to be significantly higher in general and particularly in labour intensive industries located in states categorized as inflexible. Contrary to the job security enhancing intention of labour regulation the employment status of average workers in establishments close to or just above the threshold size appear to be more vulnerable. |
| Keywords: | labour regulation, threshold, firm size distribution, employment |
| JEL: | L11 K31 J58 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2013-012&r=bec |
| By: | Andreoli-Versbach, Patrick; Franck, Jens-Uwe |
| Abstract: | Tacit collusion reduces welfare comparably to explicit collusion but remains mostly unaddressed by antitrust enforcement which greatly depends on evidence of explicit communication. We propose to target specific elements of firms’ behavior that facilitate tacit collusion by providing quantitative evidence that links these actions to an anticompetitive market outcome. We apply our approach to incidents on the Italian gasoline market where the market leader unilaterally announced its commitment to a policy of sticky pricing and large price changes which facilitated price alignment and coordination of price changes. Antitrust policy has to distinguish such active promotion of a collusive strategy from passive (best response) alignment. Our results imply the necessity of stronger legal instruments which target unilateral conduct that aims at bringing about collusion. |
| Keywords: | antitrust law; tacit collusion; oligopolistic competition; gasoline market |
| JEL: | K21 K42 L13 L71 L41 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:16179&r=bec |
| By: | Antonietti,Roberto; Marzucchi,Alberto |
| Abstract: | In this paper we empirically investigate the relationship between investments in environmentally-oriented equipment and firms’ export performance. Drawing on Porter hypothesis and firm heterogeneity theory, we adopt a structural model where first we estimate the impact of green investment strategies on the level of productive efficiency (TFP), and second we assess whether induced productivity influences the extensive and intensive margin of exports. Relying on a rich firm-level dataset on Italian manufacturing, our results show that firms with higher productivity, induced among other factors by green investment involving environmental protection and reduction in the use of raw materials, have increased commitment to, and profits from, exports, especially towards countries adopting a more stringent environmental regulatory framework. Our evidence provides a ‘green investment-based’ explanation for the link between TFP-heterogeneity and trade. |
| Keywords: | Exports, Firm Heterogeneity, Green Investment Strategy, Total Factor Productivity |
| JEL: | Q55 Q56 F14 F18 |
| Date: | 2013–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:ing:wpaper:201302&r=bec |