nep-bec New Economics Papers
on Business Economics
Issue of 2014‒03‒22
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. FIRM AGE AND SIZE IN THE LONGITUDINAL EMPLOYER-HOUSEHOLD DYNAMICS DATA By John Haltiwanger; Henry Hyatt; Erika McEntarfer; Liliana Sousa; Stephen Tibbets
  2. Firm Dynamics and Residual Inequality in Open Economies By Gabriel Felbermayr; Giammario Impullitti; Julien Prat
  3. REALLY UNCERTAIN BUSINESS CYCLES By Nicholas Bloom; Max Floetotto; Nir Jaimovich; Itay Saporta-Eksten; Stephen J. Terry
  4. Micro-based evidence of EU competitiveness: The CompNet database By CompNet Task Force
  5. OPEN BUSINESS MODELS AND VENTURE CAPITAL FINANCE By Colombo, Massimo G.; Cumming, Douglas; Mohammadi, Ali; Rossi-Lamastra , Cristina; Wadhwa , Anu
  6. On the impact of competition on trade and firm location By Toshihiro Okubo; Pierre Picard; Jacques-François Thisse
  7. Culturally Clustered or in the Cloud? Location of Internet Start-ups in Berlin By Kristoffer Moeller
  8. Industry structure and collusion with uniform yardstick competition: theory and experiments By Mulder, Machiel; Haan, Marco A.; Dijkstra, Peter T.
  9. Sizing Up the Impact of Embassies on Exports By Fer, Shon; Forslid, Rikard
  10. How to Persistently Finance Innovation: A Panel-Data Study on Exporting Firms in Sweden By Lööf, Hans; Nabavi , Pardis
  11. Works Councils, Training Activities and Innovation: A Study of German Firms By Uwe Cantner; Wolfgang Gerstlberger; Ipsita Roy
  12. Competition and Specialization: Evidence from Venture Capital By Cabolis, Christos; Dai, Mian; Serfes, Konstantinos
  13. Nature of competition and new technology adoption By Krishnendu Ghosh Dastidar

  1. By: John Haltiwanger; Henry Hyatt; Erika McEntarfer; Liliana Sousa; Stephen Tibbets
    Abstract: The Census Bureau’s Quarterly Workforce Dynamics (QWI) and OnTheMap now provide detailed workforce statistics by employer age and size. These data allow a first look at the demographics of workers at small and young businesses as well as detailed analysis of how hiring, turnover, job creation/destruction vary throughout a firm’s lifespan. Both the QWI and OnTheMap are tabulated from the Longitudinal Employer-Household Dynamics (LEHD) linked employer-employee data. Firm age and size information was added to the LEHD data through integration of Business Dynamics Statistics (BDS) microdata into the LEHD jobs frame. This paper describes how these two new firm characteristics were added to the microdata and how they are tabulated in QWI and OnTheMap
    Date: 2014–03
  2. By: Gabriel Felbermayr; Giammario Impullitti; Julien Prat
    Abstract: Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyse this pattern, we incorporate directed labour market search into a dynamic model of international trade with heterogeneous firms and homogeneous workers. Wage inequality across and within firms results from their different hiring needs along their life cycles and the convexity of their adjustment costs. The interaction between wage posting and firms' growth process allows us to explain some recent empirical regularities on firm and labour market dynamics. Fitting the model to capture key features obtained from German linked employer-employee data, we investigate how falling trade costs and institutional reforms interact in shaping firm dynamics and aggregate labor market outcomes. Focusing on the period 1996-2007, we find that neither trade nor key features of the Hartz labour market reforms account for the sharp increase in residual inequality observed in the data. By contrast, inequality is highly responsive to the increase in product market competition triggered by domestic deregulation reforms
    Keywords: Wage Inequality, International Trade, Directed Search, Firm Dynamics, Product and Labour Market Regulation.
    Date: 2014
  3. By: Nicholas Bloom; Max Floetotto; Nir Jaimovich; Itay Saporta-Eksten; Stephen J. Terry
    Abstract: We propose uncertainty shocks as a new shock that drives business cycles. First, we demonstrate that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model with heterogeneous firms. We find that reasonably calibrated uncertainty shocks can explain drops and rebounds in GDP of around 3%. Moreover, we show that increased uncertainty alters the relative impact of government policies, making them initially less effective and then subsequently more effective.
    Keywords: uncertainty, adjustment costs, and business cycles.
    JEL: D92 E22 D8 C23
    Date: 2014–03
  4. By: CompNet Task Force
    Abstract: Drawing from confidential firm-level balance sheets in 11 European countries, the paper presents a novel sectoral database of comparable productivity indicators built by members of the Competitiveness Research Network (CompNet) using a newly developed research infrastructure. Beyond aggregate information available from industry statistics of Eurostat or EU KLEMS, the paper provides information on the distribution of firms across several dimensions related to competitiveness, e.g. productivity and size. The database comprises so far 11 countries, with information for 58 sectors over the period 1995-2011. The paper documents the development of the new research infrastructure, the construction of the database, and shows some preliminary results. Among them, it shows that there is large heterogeneity in terms of firm productivity or size within narrowly defined industries in all countries. Productivity, and above all, size distribution are very skewed across countries, with a thick left-tail of low productive firms. Moreover, firms at both ends of the distribution show very different dynamics in terms of productivity and unit labour costs. Within-sector heterogeneity and productivity dispersion are positively correlated to aggregate productivity given the possibility of reallocating resources from less to more productive firms. To this extent, we show how allocative efficiency varies across countries, and more interestingly, over different periods of time. Finally, we apply the new database to illustrate the importance of productivity dispersion to explain aggregate trade results.
    Keywords: cross country analysis, firm-level data, competitiveness, productivity and size distribution, total factor productivity, allocative efficiency
    JEL: L11 L25 D24 O4 O57
    Date: 2014–03
  5. By: Colombo, Massimo G. (Department of Management, Economics and Industrial Engineering, Politecnico di Milano); Cumming, Douglas (Schulich School of Business, York University); Mohammadi, Ali (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Rossi-Lamastra , Cristina (Department of Management, Economics and Industrial Engineering, Politecnico di Milano); Wadhwa , Anu (Ecole Polytechnique Fédérale de Lausanne - Management of Technology and Entrepreneurship Institute (MTEI))
    Abstract: Do entrepreneurial ventures that adopt an open business model obtain VC finance from higher quality VC investors in comparison with entrepreneurial ventures that adopt a closed business model? Are VC investments in open business model ventures are more likely to be syndicated and more frequently staged? In this paper we consider these questions on a sample of 6,555 VC investments in 514 software entrepreneurial ventures that received the first round of VC finance in the period 1994-2008. Of these ventures, 124 adopted an open business model based on open source software (OSS) and the remaining ventures adopted a closed business model based on the development and sale of proprietary software. Our findings indicate that OSS entrepreneurial ventures received funding from higher quality VC investors, with VC quality being measured by general experience, industry-specialization, IPO success, raised capital and connectedness in syndication network. Also, VC investments in OSS entrepreneurial ventures were more frequently staged. Conversely, we do not find any difference between OSS and proprietary software entrepreneurial ventures as number of VC participated in syndication.
    Keywords: Open Business Model; Entrepreneurial Venture; Open Source Software; Venture Capital; Uncertainty
    JEL: G24 L17 O31
    Date: 2014–03–12
  6. By: Toshihiro Okubo (Keio University, Japan); Pierre Picard (CREA, Université de Luxembourg); Jacques-François Thisse (Université catholique de Louvain)
    Abstract: We study how the level of trade costs and the intensity of competition interact to explain the nature and intensity of trade within a given industry and the location of firms across countries. As trade costs decrease from very high to very low values, the global economy moves from autarky to two-way trade, through one-way trade from the larger to the smaller region. By exploring the intensive and extensive margins of exports, we investigate how the intensity of trade reacts to the degree of competitiveness. Furthermore, when firms are free to change location, they flow from the small to the large country, and the larger country is always a net exported on the manufactured good. Firms located in the big country have a bigger size than those located in the small one. Under one-way trade, the relocation of firms changes their attitude toward export.
    Keywords: trade, competition, firm location, capital mobility
    JEL: F12 H22 H87 R12
    Date: 2014
  7. By: Kristoffer Moeller
    Abstract: Knowledge based firms like IT companies do neither have a capital- nor a land intensive production. They predominantly rely on qualified labour and increasingly depend on the location of its (potential) employees. This implies that it is more likely that firms follow workers rather than the other way around. Contributing to the literature of firm location and consumer cities I empirically test the amenity oriented firm location hypothesis. In particular I investigate whether Berlin internet start-up firms, representing a footloose knowledge-based service industry, locate in urban amenity-rich places. Identification builds on the sudden fall of the Berlin Wall. The intra-city analysis yields a significant impact of urban amenities on the location of internet start-up. A comparison with other service industries suggests that amenities are significant to the location choice of creative sectors whereas no effect can be observed for non-creative firms.
    Keywords: Firm location, urban amenities, consumer city, internet start-ups, entrepreneurs, Berlin
    JEL: R30 D22 L26
    Date: 2014–03
  8. By: Mulder, Machiel; Haan, Marco A.; Dijkstra, Peter T. (Groningen University)
    Abstract: We study cartel stability in an industry that is subject to uniform yardstick regulation. In a theoretical model, we show that the number of symmetric firms does not affect collusion. In a laboratory experiment, however, we do find an effect. If anything, increasing the number of firms facilitates collusion. Our theory suggests that an increase in heterogeneity increases the regulated price if firms do not collude, but also makes collusion harder, rendering the net effect ambiguous. Our experiment suggests that the effect of collusion is stronger.
    Date: 2014
  9. By: Fer, Shon (Research Institute of Industrial Economics (IFN)); Forslid, Rikard (Stockholm University)
    Abstract: The purpose of this study is to test for the effects of trade promotion via the foreign service. We develop a Melitz-based model where firms are heterogeneous with respect to productivity and must pay a beachhead cost to enter a foreign market, which can be reduced by government spending on trade promotion. The model predicts that unilateral trade promotion allows medium-sized firms to export. We test this prediction using Swedish firm-level data and information on the opening and closing of Swedish embassies abroad using Norwegian firms as control group. Our results lend support to the predictions of the model, with large and medium-sized firms responding most strongly to the opening of embassies.
    Keywords: Heterogeneous firms; Trade promotion
    JEL: D21 D22 F12 F15
    Date: 2014–03–04
  10. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Nabavi , Pardis (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper provides estimates of negative binomial regressions for high-leveraged and non-high-leveraged exporting firms in Sweden over a business cycle that contains two boom periods and two recession periods. The contemporaneous cash flow coefficients are positive and statistically significantly associated with patent applications for non-high-equity firms in recession periods when all exporters are considered. No corresponding correlation is found among persistent exporters. Taking the firms’ geographical location into account, we find a significant difference in cash flow sensitivity between firms in metropolitan areas and firms located in other places.
    Keywords: Exporting; Innovation; Financing constraints; Firm level; Panel data
    JEL: C16 F14 G32 O31
    Date: 2014–03–12
  11. By: Uwe Cantner (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Wolfgang Gerstlberger (University of Southern Denmark, Department of Marketing and Management); Ipsita Roy (Graduate College "The Economics of Innovative Change" (DFG-GK-1411), Friedrich Schiller University Jena, Department of Economics)
    Abstract: Building on the notion of general and specific human capital proposed by Becker (1962), the paper highlights the importance of employee training practices undertaken in firms as an important tool for human resource and knowledge management and focuses on the role of works councils as a specific form of employee representation system therein. Using establishment data on various aspects of training practices and innovation activities in Germany, the paper examines the degree, type and extent to which establishments invest in employee training and finds significant differences for firms with and without works councils. Specifically, findings suggest that works councils are related more with the provision of generalized training rather than in firm-specific technical training of employees. In addition, the paper finds strong support for using works councils as an instrument for a firm's total training activities that correlate with innovation, and weak support when we consider only generalized training and innovation. Finally, no significant relation is found between training practices and radical innovativeness of firms after accounting for reverse causality.
    Keywords: employee training practices, knowledge management, generalized training, firm-specific technical training, works councils, innovation, radical innovation
    JEL: J5 M53 O3
    Date: 2014–03–10
  12. By: Cabolis, Christos (ALBA Graduate Business School); Dai, Mian (School of Economics LeBow College of Business Drexel University); Serfes, Konstantinos (School of Economics LeBow College of Business Drexel University)
    Abstract: Venture capital (VC) investments are characterized by stepwise infusion of capital to entrepreneurial (EN) companies in different development stages: early/seed, start-up, expansion and other stages. Stage specialization is crucial for the development and growth of the companies that receive VC funding, because each stage requires different skills and abilities on part of the VC firms. It is generally accepted in economics that more competition leads to more specialization. Does this hold in the VC market? To answer this question, we develop a market equilibrium model that captures many of the salient features of the VC market, such as two-sided heterogeneity, bilateral bargaining, endogenous matching and moral hazard. The theoretical model gives rise to two opposing effects on the incentives of VC firms to specialize as competition increases and hints to a non-monotonic relationship. Using panel data on VC investments in the U.S. between 1980 and 2006, we find robust empirical evidence of an inverse U-shape relationship between competition and stage specialization. Contrary to conventional wisdom, more competition (larger market) may discourage specialization.
    Keywords: Venture capital market; Stage specialization; Competition; Endogenous matching
    JEL: D21 L11 L14 L22
    Date: 2014–03–01
  13. By: Krishnendu Ghosh Dastidar
    Abstract: This paper analyses the incentives to adopt cost-reducing technology by firms in a horizontally differentiated industry. In our model there are several suppliers of a new technology. The extent of the cost reduction depends on the quality of the new technology. A firm has to buy the technology in a 'scoring auction'. This means that both the price and the quality (which affects marginal cost of production) of this new technology are no longer given but depend on the equilibrium outcome in the 'scoring auction'. We show that the nature of competition (Cournot or Bertrand) has no effect on the equilibrium decision of the firms to adopt the new technology when the quality of the new technology offered by the suppliers lies in the interior of the feasible range of qualities. In this case, both firms adopt new technology. However, when there is a corner solution, then it is possible to have equilibria where only one firm (or no firm) adopts the new technology. With corner solution the nature of competition (Cournot or Bertrand) makes a difference to the equilibrium outcomes.
    Date: 2014–03

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