nep-bec New Economics Papers
on Business Economics
Issue of 2013‒11‒14
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Do transfer pricing laws limit international income shifting? Evidence from European multinationals By Theresa Lohse; Nadine Riedel
  2. Debt Decisions in Deregulated Industries By Ovtchinnikov , Alexei V.
  3. How Culture Molds the Effects of Self Efficacy and Fear of Failure on Entrepreneurship By Wennberg, Karl; Pathak, Saurav; Autio, Erkko
  4. Firm Heterogeneity and the Localization of Economic Activities By Pamela Bombarda
  5. Benchmarking for Routines and Organizational Knowledge By Mircea Epure
  6. Definitions Matter: Measuring Gender Gaps in Firms' Access to Credit By Claudia Piras; Andrea Filippo Presbitero; Roberta Rabellotti
  7. Over-Confidence and Entrepreneurial Choice Under Ambiguity By Shyti , Anisa
  8. Marking to Market and Inefficient Investment Decisions By Otto, Clemens A.; Volpin , Paolo F.
  9. Conservative accounting yields excessive risk-taking; a note By Johannes Becker; Melanie Steinhoff
  10. Risky Investments with Limited Commitment By Thomas F. Cooley; Ramon Marimon; Vincenzo Quadrini
  11. Regulatory Versus Natural Endogenous Sunk Costs: Observational Equivalence In Rationalizing Lower Bounds On Industry Concentration By Pham Hoang Van; David D. VanHoose
  12. Synchronization and the Coupled Oscillator Model in International Business Cycles By IKEDA Yuichi; AOYAMA Hideaki; YOSHIKAWA Hiroshi
  13. Mergers and Product Quality: Evidence from the Airline Industry By Chen, Yongmin; Gayle, Philip
  14. The impact of duality on managerial decisions and performance: Evidence from the mutual fund industry By Kempf, Alexander; Pütz, Alexander; Sonnenburg, Florian

  1. By: Theresa Lohse (University of Mannheim); Nadine Riedel (University of Hohenheim, CESifo Munich & Oxford University CBT)
    Abstract: In recent years several countries have augmented their national tax laws by transfer pricing legislations which intend to limit the leeway of multinational firms to exploit international corporate tax rate diverences and relocate profit to low-tax affiliates by distorting intra-firm transfer prices. The aim of this paper is to empirically investigate whether these laws are instrumental in restricting shifting behaviour. To do so, we exploit unique information on the scope and evolution of national transfer pricing laws and link it with panel data on European multinationals. In line with previous studies, we find evidence for tax-motivated profit shifting. The analysis further suggests that transfer pricing rules significantly reduce shifting activities. The effect is economically relevant, suggesting that the legislations may be socially desirable despite the high administrative burden they impose on firms and tax authorities.
    Keywords: corporate taxation, international prot shifting, transfer pricing laws
    JEL: H25 F23
    Date: 2013
  2. By: Ovtchinnikov , Alexei V.
    Abstract: Regulation and subsequent deregulation significantly affect firms’ debt decisions. Prior to deregulation, regulated firms depend significantly more on long-term and public debt but reduce this dependence considerably during deregulation. Cross-sectional analysis shows that the reduction in the use of long-term and public debt results from changing firm sensitivities to determinants of debt decisions triggered by deregulation. Consistent with credit and liquidity risk theories of debt maturity, the concave relation between firm quality and debt maturity is significantly attenuated among regulated firms. Inconsistent with these theories, the convex relation between firm quality and the preference for public debt exists only among regulated firms. I find limited support for other theories.
    Keywords: Debt decisions; debt maturity; public and private debt issues; deregulation
    JEL: G32 G38
    Date: 2013–08–22
  3. By: Wennberg, Karl (The Ratio Institute & Stockholm School of Economics); Pathak, Saurav (Michigan Tech University); Autio, Erkko (Imperial College London Business School)
    Abstract: We use data from the Global Entrepreneurship Monitor (GEM) and the Global Leadership and Organizational Behavior Effectiveness study (GLOBE) for 42 countries to investigate how the effects of individual’s self-efficacy and fear of failure on entrepreneurial entry are contingent on national cultural practices. Using multi-level methodology, we observe that the positive effect of self-efficacy on entry is moderated by the cultural practices of institutional collectivism and performance orientation. Conversely, the negative effect of fear of failure on entry is moderated by the cultural practices of institutional collectivism and uncertainty avoidance. We discuss the implications for theory and methodological development in culture and entrepreneurship.
    Keywords: Culture; Entrepreneurship; Institutions; Multi-level
    JEL: D24 L25 L26
    Date: 2013–11–04
  4. By: Pamela Bombarda (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)
    Abstract: This paper examines how market-access strategies, via exports and FDI, respond to changes in the level of integration. Empirical evidence shows that both firm exports and multinational activity are affected by trade-liberalization episodes. We account for the strong positive correlation between exports and FDI by developing a general-equilibrium model featuring firm heterogeneity, trade and FDI with final and intermediate products. Different geographical spaces are considered to quantify the effect of a preferential trade agreement (PTA) on supply-mode decisions, for both partner and excluded countries. The model sheds new light on the mechanisms through which geography reshapes the concentration of economic activities both inside and outside the PTA area.
    Keywords: Heterogeneous firms; PTA; Spatial networks; Intra-firm trade
    Date: 2013–10–27
  5. By: Mircea Epure
    Abstract: We use best practice benchmarking rationales to propose a dynamic research design that accounts for the endogenous components of across-firms heterogeneous routines to study changes in performance and their link to organizational knowledge investments. We thus contribute to the operationalization of management theoretical frameworks based on resources and routines. The research design employs frontier measures that provide industry-level benchmarking in organizational settings, and proposes some new indicators for firm-level strategic benchmarking. A profit-oriented analysis of the U.S. technology industry during 2000-2011 illustrates the usefulness of our design. Findings reveal that industry revival following economic distress comes along with wider gaps between best and worst performers. Second stage analyses show that increasing intangibles stocks is positively associated with fixed target benchmarking, while enhancing R&D spending is linked to local frontier progress. The discussion develops managerial interpretations of the benchmarking measures that are suitable for control mechanisms and reward systems.
    Keywords: benchmarking, routines, organizational knowledge, frontier analysis, managerial accounting
    JEL: M1 M4 M41 D2 M0
    Date: 2013–10
  6. By: Claudia Piras (IDB); Andrea Filippo Presbitero (International Monetary Fund, Universit… Politecnica delle Marche - MoFiR); Roberta Rabellotti (Universit… di Pavia, Department of Political and Social Sciences)
    Abstract: Standards measures of female ownership and management of firms included in the World Bank Enterprise Survey do not support the existence of a gender gap in access to finance in the Latin American and Caribbean region. Nonetheless, more precise measures show that women-led businesses are more likely to be financially constrained than other comparable firms. The evidence presented herein suggests that this gender gap may be driven by taste-based discrimination. This paper exploits a rich dataset that provides detailed information about female ownership and management in firms, allowing for further understanding of gender gaps in access to finance.
    Keywords: Access to credit, Discrimination;, Firm ownership, Gender;
    JEL: G21 J16 O54
    Date: 2013–10
  7. By: Shyti , Anisa
    Abstract: Entrepreneurship studies have attributed to over-confidence decisions to start a new venture. Many decision situations, through which over-confidence is measured, entail some degrees of uncertainty, (e.g., related to own skill or to competition). The aspect of uncertainty is largely neglected in over-confidence studies or entrepreneurial research. Both uncertainty and over-confidence influence individuals’ likelihood perceptions. Nevertheless, these two aspects are seldom jointly investigated, and the little evidence provides inconclusive results. In this study, we experimentally investigate how uncertainty, as a property of the situation, and over-confidence, as a characteristic of decision makers’ beliefs, influence choice behavior. Our findings with Executive MBA participants show that over-confident decision makers choose less uncertain options for low likelihood outcomes and more uncertain options for high likelihood outcomes, contrary to neutral confidence decision makers, whose choices are in line with standard Prospect Theory predictions
    Keywords: entrepreneurship; ambiguity attitudes; decision making; over-con fidence
    JEL: D80 D81 L26
    Date: 2013–05–21
  8. By: Otto, Clemens A.; Volpin , Paolo F.
    Abstract: We examine how mark-to-market accounting affects investment decisions in an agency model with reputation concerns. Reporting the current market value of a firm's assets in the financial statements can serve as a disciplining device because the information contained in the market price provides a benchmark against which the agent's actions can be evaluated. However, the fact that market prices are informative can have a perverse effect on the investment decisions: The agent may prefer to ignore relevant but contradictory private information whose revelation would damage his reputation. Surprisingly, this effect makes mark-to-market accounting less desirable as market prices become more informative.
    Keywords: Accounting rules; marking to market; historical cost accounting; investment decisions; reputation; agency problem
    JEL: D81 G31 M41
    Date: 2013–06–29
  9. By: Johannes Becker (University of Münster); Melanie Steinhoff (University of Münster)
    Abstract: We analyse the role of business taxation for corporate risk-taking under different accounting principles. We build a model in which investors have complete information and markets are perfect. A representative risk-neutral firm invests in one unit of an asset choosing from a continuum of assets differing in income and risk properties. The corporate tax base is determined following specific accounting principles (such as mark-to-market, lower-of-cost-or-market and historical cost). We demonstrate that conservative accounting may imply incentives to overinvest in risky assets. If tax loss offset opportunities are less than perfect, the mark-to-market principle penalizes risky investment whereas more conservative accounting leaves the risk choice unaffected.
    Keywords: accounting; risk-taking; business taxation; corporate investment
    JEL: H25 M41 G32
    Date: 2013
  10. By: Thomas F. Cooley; Ramon Marimon; Vincenzo Quadrini
    Abstract: Over the last three decades there has been a dramatic increase in the size of the financial sector and in the compensation of financial executives. This increase has been associated with greater risk-taking and the use of more complex financial instruments. Parallel to this trend, the organizational structure of the financial sector has changed with the traditional partnership replaced by public companies. The organizational change has increased the competition for managerial talent, which may have weakened the commitment between investors and managers. We show how increased competition and the weaker commitment can raise the managerial incentives to undertake risky investment. In the general equilibrium, this change results in higher risk-taking, a larger and more productive financial sector with greater income inequality (within and across sectors), and a lower market valuation of financial institutions.
    JEL: E25 E44 G01 G3
    Date: 2013–10
  11. By: Pham Hoang Van (Associate Professor of Economics, Hankamer School of Business, Baylor University); David D. VanHoose (Professor of Economics and Herman Lay Professor of Private Enterprise, Hankamer School of Business, Baylor University)
    Abstract: We propose a theory of 'regulatory endogenous sunk costs'(RESC), in which a captured regulator raises minimum quality standards when market size increases in order to protect incumbent firms. Our RESC theory's predictions that market size is unrelated to industry concentration and positively related to product quality are observationally equivalent to those of Sutton's theory of `natural endogenous sunk costs' (NESC), in which incumbents increase qualityinvestments to compete for a share of a growing market. The NESC theory suggests that, with higher entry costs, incumbents jockey for increased market shares by increasing quality investments. The RESC theory, however, predicts that product quality should be lower with higher entry costs. Entry costs and minimum quality standards each provide incumbents with protection from prot erosions that entry otherwise would produce. A key implication of our analysis is the possibility that some industries might be misclassied as natural oligopolies. We provide a few examples of candidate RESC industries.
    Keywords: Regulatory compliance costs, endogenous sunk costs
    JEL: L13 L51
    Date: 2013
  12. By: IKEDA Yuichi; AOYAMA Hideaki; YOSHIKAWA Hiroshi
    Abstract: Synchronization in international business cycles attracts economists and physicists as an example of self-organization in the time domain. In economics, synchronization of the business cycles has been discussed using correlation coefficients between gross domestic product (GDP) time series. However, more definitive discussions using a suitable quantity describing the business cycles are needed. In this paper, we analyze the quarterly GDP time series for Australia, Canada, France, Italy, the United Kingdom, and the United States from Q2 1960 to Q1 2010 in order to obtain direct evidence for the synchronization and to clarify its origin. We find frequency entrainment and partial phase locking to be direct evidence of synchronization in international business cycles. Furthermore, a coupled limit-cycle oscillator model is developed to explain the mechanism of synchronization. In this model, the interaction due to international trade is interpreted as the origin of the synchronization.
    Date: 2013–10
  13. By: Chen, Yongmin; Gayle, Philip
    Abstract: Retrospective studies of horizontal mergers have focused on their price effects, leaving the important question of how mergers affect product quality largely unanswered. This paper empirically investigates this issue for two recent airline mergers: Delta/Northwest and Continental/United. Consistent with the theoretical premise that mergers improve coordination but diminish competitive pressure for quality provision, we find: (i) each merger is associated with a quality increase in markets where the merging firms did not compete pre-merger, but with a quality decrease in markets where they did; and (ii) the quality change can be a U-shaped function of the pre-merger competition intensity.
    Keywords: Mergers; Product Quality; Airlines
    JEL: L13 L93
    Date: 2013–11–04
  14. By: Kempf, Alexander; Pütz, Alexander; Sonnenburg, Florian
    Abstract: We study the decisions and performance of managers who are also chair of the board (duality managers). We hypothesize that duality managers take more risky decisions and deliver worse performance than non-duality managers due to reduced level of control and replacement risk. Using the mutual fund industry as our laboratory we provide strong support for these hypotheses: Duality managers take risk that they could easily avoid, deviate from their benchmarks, make extreme decisions, and, consequently, deliver extreme performance outcomes. Furthermore, their average underperformance is 2.5 percent. All effects are the stronger, the more power the manager has in the board. --
    Keywords: Manager duality,governance,managerial decisions,agency conflicts,mutual funds
    JEL: G23 G34
    Date: 2013

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