nep-bec New Economics Papers
on Business Economics
Issue of 2014‒03‒15
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Firm Complexity and Post-Earnings-Announcement Drift By Barinov, Alexander; Park, Shawn Saeyeul; Yildizhan, Celim
  2. Information Asymmetry and the Market Response to Open Market Share Repurchases By Lee, Bong Soo; Mauck, Nathan
  3. Cultures of Female Entrepreneurship By Foreman-Peck, James; Zhou, Peng
  4. Financial crisis, internationalization choices and Italian firm survival By Costa, Stefano; Pappalardo, Carmine; Vicarelli, Claudio
  5. Driving a firmÕs export propensity and export intensity: the role of experience, innovation, and international marketing strategy By Eleonora Di Maria; Roberto Ganau
  6. OPEC's market power: An empirical dominant firm model for the oil marketorecasting recessions in real time By Rolf Golombek; Alfonso A. Irarrazabal; Lin Ma
  7. Person-Organization Fit and Incentives: A Causal Test By Andersson, Ola; Huysentruyt, Marieke; Miettinen, Topi; Stephan, Ute
  8. On the Role of Management Commitment in Export Performance: A Meta-Analysis By Anissa Chaibi; Hind El Makrini
  9. Uncertain Efficiency Gains and Merger Policy By Mariana Cunha; Paula Sarmento; Hélder Vasconcelos
  10. Corporate Taxes and the Growth of the Firm By Federica Liberini
  11. Waste, Recycling and Entrepreneurship in Central and Northern Europe, 1870-1940 By Geoffrey G. Jones; Andrew Spadafora
  12. Opting Out of Good Governance By C. Fritz Foley; Paul Goldsmith-Pinkham; Jonathan Greenstein; Eric Zwick
  13. Taxing Businesses Through the Individual Income Tax By Congressional Budget Office

  1. By: Barinov, Alexander; Park, Shawn Saeyeul; Yildizhan, Celim
    Abstract: The paper shows that the post earnings announcement drift is stronger for conglomerates, despite conglomerates being larger, more liquid, and more actively researched by investors. We attribute this finding to slower information processing about complex firms and show that the post earnings announcement drift is positively related to measures of conglomerate complexity. We also find that the post earnings announcement drift is stronger for new conglomerates than it is for existing conglomerates and that investors are most confused about complicated firms that expand from within rather than firms that diversify into new business segments via mergers and acquisitions.
    Keywords: post-earnings-announcement drift, conglomerates, mispricing, limits to arbitrage, complicated firms
    JEL: D83 G12 G14 M40
    Date: 2014–01–01
  2. By: Lee, Bong Soo; Mauck, Nathan
    Abstract: This paper proposes a new measure of firm information asymmetry. The information asymmetry measure is based on causality tests relating repurchase information to firm returns. Our results indicate that firms with greater information asymmetry show larger abnormal returns surrounding the announcement of an open market share repurchase. This new information asymmetry proxy remains a significant explanatory factor for announcement abnormal returns after controlling for other conventional information asymmetry proxies, such as firm size, number of analysts following, and analyst forecast dispersion. Further, our measure of information asymmetry is positively related to long-term abnormal returns at one, two, and three-year windows.
    Keywords: Payout policy; Open market share repurchases; Information asymmetry; Time series; Causality
    JEL: G30 G35
    Date: 2014–03–01
  3. By: Foreman-Peck, James (Cardiff Business School); Zhou, Peng (Cardiff Business School)
    Abstract: The present research shows how entrepreneurial culture contributes to the widely noted difference in entrepreneurial propensities between men and women. The consequences of the assumed differential importance of household and family generate testable hypotheses about the gender effects of entrepreneurial culture. The principal hypothesis is that there is a greater chance of females in ‘unentrepreneurial’ cultures being relatively entrepreneurial compared to males. Also women from different entrepreneurial cultures show greater similarity of behaviour (lower variance) than men. But proportionate gender gaps within entrepreneurial cultures are less than those between males of different cultures. These hypotheses are tested on US immigrant data from the 2000 census and are not rejected.
    Keywords: Entrepreneurship; Culture; Gender; Migrants
    JEL: D01 J15 J23 J61 J16
    Date: 2014–01
  4. By: Costa, Stefano; Pappalardo, Carmine; Vicarelli, Claudio
    Abstract: In this paper we focus on the relationship between internationalization choices and survival of Italian firms during the financial crisis. Making use of a new database matching four firm-level datasets provided by the Italian National Statistical Institute (ISTAT), we build a detailed taxonomy of internationalization activities of Italian firms in 2007 and 2010, before and after the financial crisis. Descriptive analyses confirms that firms showing a more complex form of internationalization have higher levels of efficiency, as well as higher diversification of production, measured in terms of the variety of exported goods. Indeed, over the period 2007-2010 Italian firms have moved (on average) towards more complex forms of internationalization. These upwards changes have determined positive effects on employment dynamics and value added growth. For each class of internationalization we estimate a conditional Probit of survival according to the level of productivity and controlling for firm and industry specific variables. Our results show that multinational firms (at the top of our taxonomy) show a lower resilience during the crisis with respect “global” or “two-way traders”, playing a minor role of stabilizers with respect to domestic owner firms. These findings put more emphasis on issue of the diversification of products and markets as a goal to be pursued by firms, even in times of crisis such as the current ones, to remain competitive, make profits and survive.
    Keywords: heterogeneous firms, internationalization, survival premia, financial crisis.
    JEL: F10 F14 F23
    Date: 2014–03–04
  5. By: Eleonora Di Maria (University of Padova); Roberto Ganau (University of Padova)
    Abstract: Moving from the hypothesis of firm heterogeneity, we analyze whether the firmÕs experience, product and process innovation as well as a clear international marketing strategy affect firmsÕ probabilities of entering export markets and their export intensities (sales achieved abroad). The paper provides further knowledge on the determinants of both the decision to address foreign markets (firm export propensity) and the degree of penetration in those foreign markets (export intensity), by integrating the three above-mentioned streams of research usually approached as distinctive ones. Even though there is a large set of studies dealing with an analysis of export determinants, there is still a lack of theoretical and empirical investigation on how firmÕs innovation (product to be developed, process improvement) and marketing strategy (commitment, marketing investments) interplay in the international business processes, taking into account any prior experience of the firm in general terms as well as in the international scenario. Specifically, the paper empirically investigates how experience, innovation and international marketing strategy influence export behavior at the firm level in order to explore how these determinants act as export drivers for a firm and the consequences measured in terms of export intensity. We carried out a quantitative analysis based on a dataset on 582 Italian manufacturing firms observed over the three-year periods 2001Ð2003 and 2004Ð2006. As far as export propensity is concerned, it emerges that the main drivers affecting the firmÕs decision to enter foreign markets are related to its internal productivity level, innovation capabilities in terms of product innovation as well as an explicit marketing strategy oriented to foreign markets (establishing collaborations with foreign firms or direct commercial investment abroad). Thus, experience can be interpreted as the capability of a firm to manage internal processes (managerial experience) efficiently rather than in terms of knowledge cumulated through years of economic activities (captured through the age variable) or transferred from other partners or foreign ownership. When considering export intensity, two main elements arise from the analysis. The first one is that the shift from product to process innovations affects exports. This result can be explained by the firmÕs capability to efficiently change its internal processes to face the demand arising from foreign clients. The second important element refers to the remarkable role of direct commercial investment in influencing export intensity. This result confirms that the firm gains in terms of value captured by controlling directly its distribution channel.
    Keywords: experience; innovation; international marketing strategy; export intensity; Italy.
    Date: 2014–01
  6. By: Rolf Golombek (Ragnar Frisch Centre for Economic Research); Alfonso A. Irarrazabal (Norges Bank (Central Bank of Norway)); Lin Ma (Norwegian University of Life Sciences (NMBU))
    Abstract: In this paper we estimate a dominant firm-competitive fringe model for the crude oil market using quarterly data on oil prices for the 1986-2009 period. All the estimated structural parameters have the expected sign and are significant at standard test levels. We find that OPEC exercised its market power during the sample period. Counterfactual experiments indicate that world GDP is the main driver of long-run oil prices, however, supply (depletion) factors have become more important in recent years.
    Keywords: Oil, Dominant firm, Market power, OPEC, Lerner index, Oil deman elasticity, oil supply elasticity
    JEL: L13 L22 Q31
    Date: 2014–02–24
  7. By: Andersson, Ola (Research Institute of Industrial Economics (IFN)); Huysentruyt, Marieke (London School of Economics); Miettinen, Topi (Hanken School of Economics at HECER); Stephan, Ute (Aston Business School)
    Abstract: We investigate the effects of organizational culture and personal value orientations on performance under individual and team contest incentives. We develop a model of regard for others and in-group favoritism predicting interaction effects between organizational culture and personal values in the contest games. The predictions are tested in a computerized lab experiment with exogenous control of both organizational culture and incentives. In line with our theoretical model we find that prosocial (proself) orientated subjects exert more (less) effort in team contests in the primed prosocial organizational culture condition, relative to the neutrally primed baseline condition. Further, when the prosocial organizational culture is combined with individual contest incentives, prosocial subjects no longer outperform their proself counterparts. These findings provide a first, affirmative, causal test of person-organization fit theory. They also suggest the importance of a 'triple-fit' between personal preferences, organizational culture and incentive mechanisms for prosocially orientated individuals.
    Keywords: Tournaments; Organizational culture; Personal values; Person-organization fit; Teams; Economic incentives
    JEL: C91 D02 D23 J33 M52
    Date: 2014–02–27
  8. By: Anissa Chaibi; Hind El Makrini
    Abstract: This article reviews the conceptual, methodological, and empirical insights gained from a systematic analysis of 65 studies conducted on the role of management commitment in the export performance of the firm. Undoubtedly, this stream of research has enhanced understanding of the importance of management commitment in affecting exporting activities. However, conceptually, there is still a lack of integral theoretical framework. Methodologically, limitations are identified concerning sampling designs, fieldwork procedures, and analytical methods. Empirically, hypothesized associations between export commitment and export performance lead to conflicting findings. After a presentation of meta-analysis techniques used and articles compiled, our paper provides an original investigation of this issue by implementing three meta-analyses to examine the relationship between commitment to export and export performance. The meta-analysis, more relevant than simple literature surveys, generally leads to the conclusion that there is a significant positive relationship between export commitment and export performance. Moreover, our findings suggest directions for future research in the field.
    Keywords: commitment to export, export performance, meta-analysis, exporting inquiry.
    Date: 2014–02–25
  9. By: Mariana Cunha (FEP-UP, School of Economics and Management, University of Porto); Paula Sarmento (FEP-UP, CEF-UP); Hélder Vasconcelos (FEP-UP, CEF-UP, CEPR)
    Abstract: This paper studies the role of uncertainty in merger control and in merger decisions. In a Cournot setting, we consider that mergers may give rise to uncertain endogenous efficiency gains and that every merger has to be submitted for approval to the Antitrust Authority (AA). We assume that both the AA and the firms in the industry face the same uncertainty about the future efficiency gains induced by the merger. It is shown that an increase in the degree of uncertainty benefits both insider and outsider firms but also the consumers. Further, when uncertainty is high, there is a greater likelihood that firms propose a merger to the AA and that the AA accepts it. Interestingly, however, although uncertainty enhances merger approval chances, it also decreases merger's stability, by increasing outsiders' incentives to free-ride on it.
    Keywords: Efficiency gains; Merger control; Uncertainty
    JEL: L13 D41 D81
    Date: 2014–03
  10. By: Federica Liberini (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: It is desirable to reduce the number of "artificial" merger and acquisitions (MA) designed to escape from high tax jurisdictions, without discouraging domestic firms from growing into highly productive multinational corporations. This paper studies the effect of corporate taxes on the headquarter's decision to expand its extensive margins through the acquisition of pre-existing firms. A model for the investment behaviour of heterogeneous firms is built, and Corporate taxes are introduced. The model shows that higher home statutory corporate tax rates make exports relatively more expensive, making firms more likely to serve foreign demand through cross-border acquisitions. The model's predictions are tested on a dynamic random parameter probit model estimated on firm-level data. The model's predictions are confirmed by the results from the empirical investigation. The data also support the hypothesis that there are sunk costs associated with becoming a multinational corporation, and that domestic firm that overcome these costs and acquire their first foreign subsidiary are more likely to complete further acquisitions. In addition, the inability to shift profit to foreign locations makes domestic firms more sensitive to home corporate taxes, as their capacity to capture investment opportunity is negatively affected by a reduction in net tax profit.
    Keywords: Corporate Taxation, Merger and Acquisitions, Dynamic Probit Model
    JEL: C25 G34 H25 H32
    Date: 2014–03
  11. By: Geoffrey G. Jones (Harvard Business School, General Management Unit); Andrew Spadafora (Harvard Business School)
    Abstract: This working paper examines the role of entrepreneurs in the municipal solid waste industry in industrialized central and northern Europe from the late nineteenth century to the 1940s. It explores the emergence of numerous German, Danish and other European entrepreneurial firms explicitly devoted to making a profitable business out of conserving and returning valuable resources to productive use, while maintaining public sanitation and in many cases offering nascent environmental protections. These ventures were qualitatively different from both earlier small-scale private waste traders, and the late twentieth-century integrated waste management firms, and have been neglected in an era that historians have treated as a period of municipalization. These entrepreneurs sometimes had strikingly modern views of environmental challenges and the need to overcome them. They initiated processes for sorting and recycling waste materials that are still employed today. Yet it proved difficult to combine making profits and achieving social value in accordance with the "shared value" model of today. As providers of public goods such as health and sanitation and a cleaner environment the entrepreneurs were often unable to capture sufficient profits to sustain businesses. Recycled-goods markets were volatile. There was also a tension between the constant waste stream on the collection side and a seasonal/cyclical demand for recycled products. The frequent failure of these businesses helps to explain why in more recent decades private waste companies have been associated with late entry into recycling, often trailing municipal governments and non-profit entities.
    Keywords: Environmental Entrepreneurship, business history;
    Date: 2014–03
  12. By: C. Fritz Foley; Paul Goldsmith-Pinkham; Jonathan Greenstein; Eric Zwick
    Abstract: Cross-listing on a U.S. exchange does not bond foreign firms to follow the corporate governance rules of that exchange. Hand-collected data show that 80% of cross-listed firms opt out of at least one exchange governance rule, instead committing to observe the rules of their home country. Relative to firms that comply, firms that opt out have weaker governance practices in that they have a smaller share of independent directors. The decision to opt out reflects the relative costs and benefits of doing so. Cross-listed firms opt out more when coming from countries with weak corporate governance rules, but if firms based in such countries are growing and have a need for external finance, they are more likely to comply. Finally, opting out affects the value of cash holdings. For cross-listed firms based in countries with weak governance rules, a dollar of cash held inside the firm is worth $1.52 if the firm fully complies with U.S. exchange rules but just $0.32 if it is non-compliant.
    JEL: F21 G3 K22
    Date: 2014–03
  13. By: Congressional Budget Office
    Abstract: Business activity subject to individual rather than corporate income tax has grown, reducing federal revenues but probably promoting investment. In 1980, 83 percent of firms were organized as pass-through entities—that is, businesses subject to the individual income tax—and they accounted for 14 percent of business receipts.In 2007, those shares had increased to 94 percent and 38 percent, respectively.
    Date: 2012–12–06

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