|
on Business Economics |
| By: | Pan, Yihui (University of UT); Wang, Tracy Yue (University of MN, Twin Cities); Weisbach, Michael S. (OH State University) |
| Abstract: | This paper documents the existence of a CEO Investment Cycle, in which firms disinvest early in a CEO's tenure and increase investment subsequently, leading to "cyclical" firm growth in assets as well as in employment over CEO tenure. The CEO investment cycle occurs for both firings and non-performance related CEO turnovers, and for CEOs with different relationships with the firm prior to becoming CEO. The magnitude of the CEO cycle is substantial: The estimated difference in investment rate between the first three years of a CEO's tenure and subsequent years is approximately 6 to 8 percentage points, which is of the same order of magnitude as the differences caused by other factors known to affect investment, such as business cycles or financial constraints. We present a variety of tests suggesting that this investment cycle is best explained by a combination of agency-based theories: Early in his tenure the CEO disinvests poorly performing assets that his predecessor established and was unwilling to give up on. Subsequently, the CEO overinvests when he gains more control over his board. There is no evidence that the investment cycles occur because of shifting CEO skill or productivity shocks. Overall, the results imply that public corporations' investments deviate substantially from the first-best, and that governance-related factors internal to the firm are as important as economy-wide factors in explaining firms' investments. |
| JEL: | G32 G34 M12 M51 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2013-12&r=bec |
| By: | Nocke, Volker; Yeaple, Stephen |
| Abstract: | We present an international trade model with multiproduct firms. Firms are heterogeneously endowed with two types of capabilities that jointly determine the trade-off within firms between managing a large portfolio of products and producing at low marginal cost. The model can explain many of the documented cross-sectional correlations in firm performance measures, including why larger firms are more productive and more diversified, and yet more diversified firms trade at a discount. Globalization is shown to induce heterogeneous responses across firms in terms of scope and productivity, some of which are consistent with existing empirical work, while others are potentially testable. |
| Keywords: | multiproduct firms; trade liberalization; diversification discount; firm heterogeneity; productivity |
| JEL: | F12 F15 |
| Date: | 2013–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:408&r=bec |
| By: | Masashige Hamano (CREA, Université de Luxembourg) |
| Abstract: | This paper explores the role played by product variety and quality in a real business cycle model. Firms are heterogeneous in terms of their specific quality as well as pro- ductivity levels. Firms which have costly technology enter in a period of high aggregated demand and produce high quality goods. Thus, the average quality level and number of available varieties are procyclical, as in the data. The model can replicate the observed inflationary bias in the conventional Consumer Price Index due to a rise in the number of new product varieties and quality. |
| Keywords: | Entry and exit, firm heterogeneity, the Schumpeterian destruction, product quality, business cycles |
| JEL: | D21 E23 E32 L11 L60 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:13-21&r=bec |
| By: | Neil Lee |
| Abstract: | Growing cultural diversity is seen as important for innovation. Research has focused on two potential mechanisms: a firm effect, with diversity at the firm level improving knowledge sourcing or ideas generation, and a city effect, where diverse cities helping firms innovate. This paper uses a dataset of over 2,000 UK SMEs to test between these two. Controlling for firm characteristics, city characteristics and firm and city diversity, there is strong evidence for the firm effect. Firms with a greater share of migrant owners or partners are more likely to introduce new products and processes. This effect has diminishing returns, suggesting that it is a 'diversity' effect rather than simply the benefits of migrant run firms. However, there is no relationship between the share of foreign workers in a local labour market and firm level innovation, nor do migrant-run firms in diverse cities appear particularly innovative. But urban context does matter and firms in London with more migrant owners and partners are more innovative than others. |
| Keywords: | Cultural diversity, innovation, cities, SMEs, migration |
| JEL: | J61 L21 M13 R23 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:sercdp:0144&r=bec |
| By: | Mariagrazia Squicciarini; Hélène Dernis |
| Abstract: | This work proposes a characterisation of the patenting behaviours of firms. It relies on patent data linked to firm data from a commercial dataset, regards firms of 20 or more employees located in 15 countries, and refers to the period 1999-2010. The way in which patent assignees’ names are linked to firm names is explained, and the coverage and representativeness of the firm database used is discussed using information from structural business statistics. The profile of patenting and non-patenting firms is delineated on the basis of characteristics such as firm size, ownership, firm age and industry, and of combinations thereof. Statistics related to the sector-specific patterns of patent renewals are also shown. |
| Date: | 2013–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaaa:2013/5-en&r=bec |
| By: | Ricardo Biscaia (Faculdade de Economia do Porto); Paula Sarmento (Faculdade de Economia do Porto) |
| Abstract: | This article focuses on the location decision of firms when competing in a spatial Cournot duopoly. Our original contribution is that firms are dependent on a natural resource input, which is assumed to be located in one of the extremes of the market, to be able to produce the output sought by the consumers, and that natural resource is controlled by an independent monopolist. We solve a three stage location game, where in the first stage downstream firms choose their location, and in the next stages upstream and downstream choose how many quantities they sell in the market, assuming that downstream firms must sell their product in all points of the linear city. We conclude that downstream firms agglomerate independently of the unit input transportation cost. In addition, increases in the unit transportation cost bring the plants closer to the natural resource location. Moreover, the upstream firm loses more profit than the downstream firms when the input transportation conditions deteriorate. When we consider the problem of a social planner, we conclude that the location that firms choose is nearly the same than the location that maximizes total welfare in the economy. |
| Keywords: | Spatial Competition; Vertical Markets; Duopoly Studies; Game Theory |
| JEL: | D43 L13 R12 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:509&r=bec |
| By: | Rafik Abdesselam (COACTIS, Université Lumière Lyon 2); Jean Bonnet (CREM-UMR CNRS 6211, Université de Caen Basse-Normandie, UFR SEG (Sciences Economiques et Gestion), Normandie Université, France); Patricia Renou-Maissant (CREM-UMR CNRS 6211, Université de Caen Basse-Normandie, UFR SEG (Sciences Economiques et Gestion), Normandie Université, France) |
| Abstract: | We study the relationships between unemployment rate and new-firm startups rate in France using a quarterly data basis over the 1993-2011 period. At the national level we identify that the refugee effect explains the dynamics of entrepreneurship in France over the period 2000-2011. New French firms are mostly set up for necessity motives. At the regional level data analysis methods allow to obtain different classes of regions that represent different type of developments. For each of these classes we are able to identify the existence of refugee/Schumpeter effects both in the short-run and in the long-run. |
| Keywords: | New firm formation, Business cycle, Schumpeter effect, refugee effect, data analysis methods, panel data |
| JEL: | L26 E32 R11 C23 C38 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:201333&r=bec |
| By: | Kräkel, Matthias; Müller, Daniel |
| Abstract: | We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low synergies—even when targets with high synergies are available—to obtain high-powered incentives and, hence, a high personal income at the merger-management stage. We derive conditions under which shareholders prefer a self-commitment policy or a rent-reduction policy to deter the CEO from opportunistic recommendations. |
| Keywords: | acquisition; merger; moral hazard |
| JEL: | D82 D86 G34 |
| Date: | 2013–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:410&r=bec |
| By: | Daniele Nosenzo (School of Economics, University of Nottingham); Simone Quercia (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham) |
| Abstract: | We study the effect of group size on cooperation in voluntary contribution mechanism games. As in previous experiments, we study four- and eight-person groups in high and low marginal per capita return (MPCR) conditions. We find a positive effect of group size in the low MPCR condition, as in previous experiments. However, in the high MPCR condition we observe a negative group size effect. We extend the design to investigate two- and three-person groups in the high MPCR condition, and find that cooperation is highest of all in two-person groups. The findings in the high MPCR condition are consistent with those from n-person prisoner’s dilemma and oligopoly experiments that suggest it is more difficult to sustain cooperation in larger groups. The findings from the low MPCR condition suggest that this effect can be overridden. In particular, when cooperation is low other factors, such as considerations of the social benefits of contributing (which increase with group size), may dominate any negative group size effect. |
| Keywords: | voluntary contribution mechanism, cooperation, group size |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2013-05&r=bec |