nep-bec New Economics Papers
on Business Economics
Issue of 2013‒12‒06
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Decision to Become an Entrepreneur and the Firm Size Distribution: A Unifying Framework for Policy Analysis By Poschke, Markus
  3. Robust Imitation Strategies By Sudharshan, Devanathan; Furrer, Olivier; Arakoni, Ramesh A.
  4. Heterogeneity, Selection and Labor Market Disparities By Alessandra Bonfiglioli; Gino Gancia
  5. Subjective Evaluations: Discretionary Bonuses and Feedback Credibility By Fuchs, William
  6. The Cyclical Behaviour of Employers' Monopsony Power and Workers' Wages By Hirsch, Boris; Jahn, Elke J.; Schnabel, Claus
  8. Interest rate swaps and corporate default By Urban J. Jermann; Vivian Z. Yue
  9. Firms' export dynamics: experience vs. size By Berthou, Antoine; Vicard, Vincent
  10. Equity market misvaluation, financing, and investment By Missaka Warusawitharana; Toni M. Whited
  11. Wielrennen is niet langer business as usual. By Lagae, Wim
  12. Convergent trends in aggregate and firm volatility By Joseph Richard Pollack
  13. Innovation Determinants over Industry Life Cycle By Tavassoli, Sam

  1. By: Poschke, Markus (McGill University)
    Abstract: Developing and emerging economies have high entrepreneurship rates and relatively many small firms. There is enormous heterogeneity among these firms and entrepreneurs. This paper presents a simple occupational choice model that captures motives for entrepreneurship at both edges of the size distribution. The model is then used to analyse the effects of productivity growth, distortions, financial and labor market frictions, and risk. Capturing entrepreneurship across the size distribution allows for different reactions of high- and low-ability entrepreneurs to changes in policies and the environment. These may result in powerful general equilibrium effects. In particular, policies affecting high-ability entrepreneurs potentially running large firms can indirectly have a strong effect on entry by low-ability entrepreneurs and thus on the prevalence of small firms.
    Keywords: entrepreneurship, firm entry and exit, development, labor market regulation
    JEL: J24 L26 O11 O17
    Date: 2013–11
  2. By: Matthias Kehrig; Nicolas Vincent
    Abstract: Using confidential Census data on U.S. manufacturing plants, we document that most of the dispersion in investment rates across plants occurs within firms instead of across firms. Between-firm dispersion is almost acyclical, but within-firm dispersion is strongly procyclical. To investigate the role of firms in the allocation of capital in the economy, we build a multi-plant model of the firm with frictions at both levels of aggregation. We show that external financing constraints at the level of the firm can have important implications for plant-level investment dynamics. Finally, we present empirical evidence supporting the predictions of the model.
    Date: 2013–11
  3. By: Sudharshan, Devanathan; Furrer, Olivier; Arakoni, Ramesh A.
    Abstract: Performance is the lifeblood of a firm's management. Performance itself depends on the adaptation of strategy, based on learning and the environment. An important way that firms adapt their strategy is through imitation or mimetic isomorphism. Imitation implies a referent for such adaptations. This article seeks to determine who or what should serve as that referent. Accordingly, this research (1) develops a broad and rich model of industry dynamics, bringing together literature from industrial economics, strategic groups, learning, and resource-based theories; (2) examines the robustness of imitations strategies; and (3) develops a framework of the managerial implications of imitative behavior in varying industry conditions.
    Keywords: Imitation; Strategy Dynamics; Resources; Strategic Change; Performance
    JEL: L10 L21 L24 M21
    Date: 2013–11–28
  4. By: Alessandra Bonfiglioli; Gino Gancia
    Abstract: We study the incentives to acquire skill in a model where heterogeneous firms and workers interact in a labor market characterized by matching frictions and costly screening. When effort in acquiring skill raises both the mean and the variance of the resulting ability distribution, multiple equilibria may arise. In the high-effort equilibrium, heterogeneity in ability is sufficiently large to induce firms to select the best workers, thereby confirming the belief that effort is important for finding good jobs. In the low-effort equilibrium, ability is not sufficiently dispersed to justify screening, thereby confirming the belief that effort is not so important. The model has implications for wage inequality, the distribution of firm characteristics, sorting patterns between firms and workers, and unemployment rates that can help explaining observed cross-country variation in socio-economic and labor market outcomes.
    Keywords: wage inequality, firm heterogeneity, unemployment, effort, beliefs, sorting, selection, multiple equilibria
    JEL: E24 J24 J64
    Date: 2013–10
  5. By: Fuchs, William (University of California, Berkeley)
    Abstract: We provide a new rationale for the use of discretionary bonuses. In a setting with unknown match qualities between a worker and a firm and subjective evaluations by the principal, bonuses are useful in order to make the feedback from the firm to the workers credible. This way workers in good matches are less inclined to accept outside offers.
    Keywords: discretionary bonuses, feedback, signalling
    JEL: D82 D83 D86 M5
    Date: 2013–11
  6. By: Hirsch, Boris (University of Erlangen-Nuremberg); Jahn, Elke J. (Institute for Employment Research (IAB), Nuremberg); Schnabel, Claus (University of Erlangen-Nuremberg)
    Abstract: This paper investigates the behaviour of employers' monopsony power and workers' wages over the business cycle. Using German administrative linked employer-employee data for the years 1985-2010 and an estimation framework based on duration models, we construct a time series of the firm-level labour supply elasticity and estimate its relationship to the aggregate unemployment rate. In line with theory, we find that firms possess more monopsony power during economic downturns, which shows to be robust to controlling for time-invariant unobserved worker heterogeneity. We also document that cyclical changes in workers' entry wages are of similar magnitude as those predicted under monopsonistic wage setting, suggesting that monopsony power should not be neglected when analysing wage cyclicality.
    Keywords: monopsony power, business cycle, entry wages
    JEL: J42 J31
    Date: 2013–11
  7. By: Daniel H. Weinberg
    Abstract: Firms rely heavily on their investments in human capital to achieve profits. This research takes advantage of detailed information on worker performance and confidential information on firm revenue and operating costs to investigate the relationship between talent migration and firm profitability in major league sports. One key problem that firms have is identifying performance measures for its workforce, especially for potential employees (recruits). In contrast to nearly all other industries, in the industry of professional team sports, detailed information about the past performance of each individual worker (athlete) is known to all potential employers. First, I demonstrate using public data that worker (athlete) statistics aggregated to the establishment (team) level correlate with success on the field (measured in win percentage). Second, I use confidential data from the 2007 Economic Censuses, and from the 2007 and 2008 Service Annual Surveys to investigate the link between individual worker performance and team profitability, controlling for many other aspects of the sports business, specifically taking account of the mobility of athletic “stars” and “superstars” from one team to another. The investigations in this paper provide support for the hypothesis that hiring talented individuals (stars) will increase a firm’s profit. However, there is not convincing support for the incremental benefit of hiring superstars. The mixed evidence suggests a benefit on balance.
    Date: 2013–11
  8. By: Urban J. Jermann; Vivian Z. Yue
    Abstract: This paper studies firms' usage of interest rate swaps to manage risk in a model economy driven by aggregate productivity shocks, inflation shocks, and counter-cyclical idiosyncratic productivity risk. Consistent with empirical evidence, firms in the model are fixed-rate payers, and swap positions are negatively correlated with the term spread. In the model, swaps affect firms' investment decisions and debt pricing very moderately, and the availability of swaps generates only small economic gains for the typical firm.
    Date: 2013
  9. By: Berthou, Antoine; Vicard, Vincent
    Abstract: This paper provides evidence about the impact that size and experience in exporting have on firms' dynamics, a critical input in models of firms' dynamics. The analysis uses a census of French exports by firm-destination-product over the period 1994-2008 with a monthly frequency. We first uncover a large calendar year bias: the growth of exporters between the first and the second year of export is biased upwards because new exporters may start exporting late during the year. This incomplete calendar year reduces export revenue by 32% on average for the first year of export. We then show that, controlling for size, export experience is negatively related to net growth of exports for surviving exporters. Controlling for export experience, the relationship between average size and net growth of exports shows no systematic pattern. Finally, churning in foreign markets is decreasing with export experience and (sharply) with size. JEL Classification: F14
    Keywords: international trade
    Date: 2013–11
  10. By: Missaka Warusawitharana; Toni M. Whited
    Abstract: We quantify how much nonfundamental movements in stock prices affect firm decisions. We estimate a dynamic investment model in which firms can finance with equity or cash (net of debt). Misvaluation affects equity values, and firms optimally issue and repurchase overvalued and undervalued shares. The funds owing to and from these activities come from either investment, dividends, or net cash. The model fits a broad set of data moments in large heterogeneous samples and across industries. Firms respond to misvaluation by adjusting financing more than by adjusting investment. Managers' rational responses to misvaluation increase shareholder value by up to 8%.
    Date: 2013
  11. By: Lagae, Wim
    Date: 2013–01–24
  12. By: Joseph Richard Pollack (UP1 UFR02 - Université Paris 1, Panthéon-Sorbonne - UFR d'Économie - Université Paris I - Panthéon-Sorbonne - PRES HESAM)
    Abstract: This article unearths the determinants of the volatility of aggregate and firm-level production proxied by output and turnover respectively. This article re-visits Comin and Mulani's Note on the diverging trends between aggregate and firm volatility. Similarly to their conclusions, I establish that firm volatility is not driven by a compositional bias in my sample and that it's entirely driven by its covariance element. Contrary to their conclusions, I find a convergence between firm-level and aggregate level volatility due in part to the 2007 financial crisis.
    Keywords: volatility, variance decomposition, AMADEUS, financial crisis
    Date: 2013–06
  13. By: Tavassoli, Sam (CSIR, Blekinge Inst of Technology)
    Abstract: This paper analyzes how the influence of firm-level innovation determinants varies over the industry life cycle. Two sets of determinants are distinguished: (1) determinants of a firm’s innovation propensity, i.e. the likelihood of being innovative and (2) determinants of its innovation intensity, i.e. innovation sales. By combining the literature emphasizing firms’ internal resources (micro level) with the research strand on the role of the industry context (meso-level), the paper develops hypotheses about the relative importance of firm-level innovation determinants over the industry life cycle. Estimation of a firm-level model of innovation in Sweden, while acknowledging the stage of the life cycle of the industry a firms belongs to, shows that the importance of the determinants of innovation propensity and intensity are not equal over the stages of an industry’s life cycle.
    Keywords: Determinants of innovation; innovation intensity; innovation propensity; Industry Life Cycle (ILC); Community Innovation Survey (CIS4)
    Date: 2013–12–02

This nep-bec issue is ©2013 by Vasileios Bougioukos. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.