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on Business Economics |
| By: | Marc Melitz; Thierry Mayer; Gianmarco I.P. Ottaviano |
| Abstract: | We build a theoretical model of multi-product firms that highlights how competition across market destinations affects both a firm's exported product range and product mix. We show how tougher competition in an export market induces a firm to skew its export sales towards its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Theoretically, this within firm change in product mix driven by the trading environment has important repercussions on firm productivity. A calibrated fit to our theoretical model reveals that these productivity effects are potentially quite large. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:64736&r=bec |
| By: | Marc Melitz; Stephen Redding |
| 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 different 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. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:65406&r=bec |
| By: | Roman Kraussl; Stefan Krause (LSF) |
| Abstract: | After nearly two decades of US leadership during the 1980s and 1990s, are Europe s venture capital (VC) markets in the 2000s finally catching up regarding the provision of financing and successful exits, or is the performance gap as wide as ever? Are we amid an overall VC performance slump with no encouraging news? We attempt to answer these questions by tracking over 40,000 VC-backed firms stemming from six industries in 13 European "countries and the US between 1985 and 2009; determining the type of exit ? if" any ? each particular firm s investors choose for the venture. |
| Keywords: | Venture capital, private equity, entrepreneurial activity, performance gap |
| JEL: | G24 G3 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:13-6&r=bec |
| By: | Oriana Bandiera; Andrea Prat; Raffaella Sadun |
| Abstract: | CEOs affect the performance of the firms they manage, and family CEOs seem to weaken it. Yet little is known about what top executives actually do, and whether it differs by firm ownership. We study CEOs in the Indian manufacturing sector, where family ownership is widespread and the productivity dispersion across firms is substantial. Time use analysis of 356 CEOs of listed firms yields three sets of findings. First, there is substantial variation in the number of hours CEOs devote to work activities, and longer working hours are associated with higher firm productivity, growth, profitability and CEO pay. Second, family CEOs record 8% fewer working hours relative to professional CEOs. The difference in hours worked is more pronounced in low competition environments and does not seem to be explained by measurement error. Third, difference in diffrences estimates with respect to the cost of effort, due to weather shocks and popular sport events, reveal that the observed difference between family and professional CEOs is consistent with heterogeneous preferences for work versus leisure. Evidence from six other countries reveals similar findings in economies at different stages of development. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stieop:49&r=bec |
| By: | Povilas Lastauskas |
| Abstract: | The close relationship between politics and enterprises made the revolving door wide open and reinforced business influence on political decisions. The paper analyses relationship between firm entry institutions and import competition inside the EU. Though there is a clear tendency for entry and startup costs to decrease over time and particularly in space, I challenge the view that greater openness to trade automatically leads to improved firm entry institutions. My model enables calculating business entry impediments whereas lobbying game produces structural estimates of the counterfactual levels of trade, prices and earnings had no business obstacles existed. Conditions for active entry barriers are laid down in terms of extensive margin and asymmetries in technology and trade costs. Importantly, the model demonstrates that startling differences in firm regulation can be explained resorting to relative gains and losses accruing in a fully trading network as is the EU. More generally, understanding factors which affect imports is crucial for any model seeking to uncover ex ante welfare effects of trade |
| Keywords: | trade, entry institutions, firm heterogeneity, foreign competition |
| JEL: | C31 E02 F12 F14 F15 F55 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieasw:464&r=bec |
| By: | Joseph E. Harrington, Jr (Dept of Business Economics & Public Policy, The Wharton School, University of Pennsylvania); Roberto Hernan-Gonzalez (Dept of Economic Theory and History, Universidad de Granada); Praveen Kujal (Middlesex University) |
| Abstract: | Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communications are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:13-30&r=bec |
| By: | Francis, Bill B. (Lally School of Management, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Fordham University and Bank of Finland); Zhu, Yun (Lally School of Management, Rensselaer Polytechnic Institute) |
| Abstract: | This paper provides direct evidence that managerial style is a key determinant of the firm’s cost of capital, in the context of private debt contracting. Applying the novel empirical method by Abowd, Karmarz, and Margolis (1999) to a large sample that tracks job movement of top managers, we find that managerial style is a critical factor that explains a large part of the variation in loan contract terms. The loan-term-related managerial styles correlate with managerial styles of firm performance and corporate decisions, implying that certain managers achieve better firm performance via lower cost of capital and other desirable non-price loan terms. We further find direct evidence that banks “follow” managers’ job changes and offer loan contracts with preferential terms to their new firms. Some of the preferred managerial styles reflect managers’ personal characteristics, such as managerial ability, authority and conservatism. |
| Keywords: | managerial style; cost of capital; bank loan contract; firm performance; firm decision-making |
| JEL: | G21 G32 G34 |
| Date: | 2013–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2013_029&r=bec |
| By: | Jienwatcharamongkhol, Viroj (The Ratio Institute & Lund University) |
| Abstract: | There are several studies that find a positive effect of productivity on firm-level export, but little is known about the role of import. This paper fills this gap by looking at the interaction between import and productivity in influencing exports. The main hypothesis is that imports stimulate learning, which in turn means that the productivity effect on export is greater for firms with previous import experience. To test this, I examine whether productivity increases the probability to engage in exports and for existing exporters total value of exports when firms have imported from a period before. Using data of Swedish manufacturing firms from 1997-2006,I find that imports enhance productivity in promoting firm’s exports. |
| Keywords: | productivity; import; export; firm-level |
| JEL: | F12 F14 F41 |
| Date: | 2013–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0225&r=bec |
| By: | Marc Melitz; Saso Polanec |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:33758&r=bec |
| By: | Spyros Arvanitis (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Tobias Stucki (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Heinz Hollenstein (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | The relevance of services FDI strongly increased over the last two decades. As goods and services differ with respect to important characteristics, one may expect that the determinants of internationalisation are not identical in manufacturing and the service sector. However, there is practically no firm-level research contrasting the two sectors in this respect. In order to fill this gap, we seek to identify for manufacturing and services, firstly, the determinants of a firm’s propensity to go international (exports and/or foreign direct investment) and, secondly, the factors determining the complexity of a firm’s direct foreign activities in terms of business functions. We find that an OLI-based model can be used to explain not only the propensity to go intenational but also differences between two specific forms of direct foreign investment for both the manufacturing and the service sector. |
| Keywords: | Manufacturing vs. services internationalisation, offshoring vs. exports, internationalisation of business functions, multinational companies, international business strategy |
| JEL: | F23 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:13-348&r=bec |
| By: | Backman, Mikaela (Centre of Excellence for Science and Innovation Studies (CESIS), Jönköping International Business School, Centre for Entrepreneurship and Spatial Economics (CEnSE), & Royal Institute of Technology (KTH)); Kohlhase, Janet (University of Houston) |
| Abstract: | Our paper investigates how diversity of the labor force influences the rate of new firm formation and the performance of new firms in urban areas. A diversified labor force within the firm and in the external environment influences the formation, survival and growth of firms. We explore these issues with both aggregate data at the municipal level and individual data at the firm level for the years 1993-2010. We measure diversity using entropy measures that account for a wider range of differences than is typically used. Our empirical analysis finds a positive influence of diversity of the labor force on the rate of new firm formation at the municipal level. At the level of an individual firm, we find that the diversity of the firm’s labor force is positively associated with the survival and growth of new firms. Our results add to the literature on the workings of agglomeration economies through variations in human capital, information spillovers and innovation. |
| Keywords: | Diversity; labor force; education; occupation; industry; new firms; formation; survival; growth |
| JEL: | C31 C33 L25 L26 R10 |
| Date: | 2013–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0337&r=bec |
| By: | Ioannis Bournakis; Sushanta Mallick; David Kernohan; Dimitris A.Tsouknidis |
| Abstract: | This paper examines the direct effects of corporate tax on firm productivity along with the interaction effects of tax policy and R&D activity on productivity at firm level for over 13,062 firms during 2004-2011. Our main findings are first, that there is evidence for productivity convergence and we find that there is a positive robust relationship between R&D and firm productivity, whereas tax policy has a negative distortionary effect on TFP. Second, firms with greater export orientation do not seem to achieve much improvement in productivity, whereas the favourable productivity effect in the case of R&D-based firms suggests that if there are tax incentives in place for R&D type activity, it can promote innovation and drive productivity convergence (lagging firms closing the technology gap with those at the frontier), particularly so when there is a continued decline in overall economic activity. The results also show a significant non-linear effect of tax rate on firm-level productivity, identifying an inverse U-shaped relationship |
| Keywords: | Total Factor Productivity, Catch-Up, Effective Tax Rate, Firm-level Productivity Convergence, UK. |
| JEL: | O3 O4 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:cgs:wpaper:45&r=bec |
| By: | Batlome Janjgava |
| Abstract: | In the paper, I examine free entry in homogeneous product markets and its social efficiency. Previous research on free entry in homogeneous product markets has shown that under Cournot oligopoly with fixed setup costs the free entry equilibrium always delivers excessive entry. In contrast, I demonstrate in this paper that free entry along with excessive entry might also lead to a socially insufficient number of firms when a demand parameter uncertainty is considered. My findings support the validity of the traditional wisdom in industrial organization that free entry is desirable for social efficiency and call for revision of restrictive entry regulation practices which been based on previous research findings. |
| Keywords: | free entry; welfare; collusion; beliefs; learning; self-confirming equilibrium; escape dynamics; |
| JEL: | D60 D83 D43 L13 L40 L51 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp495&r=bec |