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on Business Economics |
| By: | BjÖrn Ohl (Narodowy Bank Polski); Taneli Mäkinen (Banca d'Italia.) |
| Abstract: | We study firms’ incentives to acquire costly information in booms and recessions to understand the role of endogenous information in explaining business cycles. We find that when the economy has been in a recession in the previous period, and firms enter the current period with a pessimistic belief, the incentive to acquire information is stronger than when the economy has been in a boom and firms share an optimistic belief. The cyclicality of the aggregate learning outcome is moderated by the price system, which transmits information from informed to uninformed firms, thus dampening information demand. Though learning from equilibrium prices acts to stabilize fluctuations by discouraging information acquisition, it can be welfare-enhancing to make information prohibitively costly to obtain. |
| Keywords: | information acquisition, rational expectations equilibrium, asymmetric information, strategic substitutability |
| JEL: | D51 D83 E32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:176&r=bec |
| By: | Michael S. Dahl (Aalborg University, Denmark); Mirjam van Praag (Copenhagen Business School, Denmark); Peter Thompson (Emory University, United States) |
| Abstract: | We study possible motivations for co-entrepenurial couples to start up a joint firm, using a sample of 1,069 Danish couples that established a joint enterprise between 2001 and 2010. We compare their pre-entry characteristics, firm performance and postdissolution private and financial outcomes with a selected set of comparable firms and couples. We find evidence that couples often establish a business together because one spouse – most commonly the female – has limited outside opportunities in the labor market. However, the financial benefits for each of the spouses, and especially the female, are larger in co-entrepreneurial firms, both during the life of the business and post-dissolution. The start-up of co-entrepreneurial firms seems therefore a sound investment in the human capital of both spouses as well as in the reduction of income inequality in the household. We find no evidence of non-pecuniary benefits or costs of coentrepreneurship |
| Keywords: | Entrepreneurship, motives, performance, couples, co-entrepreneurship. |
| JEL: | J12 L26 |
| Date: | 2014–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20140055&r=bec |
| By: | Kodongo, Odongo; Mokoaleli-Mokoteli, Thabang; Maina, Leonard |
| Abstract: | This paper investigates the relationship between leverage and the financial performance of listed firm in Kenya. We use annual data for the period 2002 – 2011. Using various panel procedures, our study finds reasonably strong evidence that leverage significantly, and negatively, affects the profitability of listed firms in Kenya. However, leverage has no effect on Tobin’s Q, our proxy for firm value. Our results are robust to alternative panel specifications and hold for both small-size and large-size firms. Second, because the performance of firms depends on other things than just their capital structure, we control for the effects of those other variables by including them in our models. In this respect, our findings suggest that asset tangibility, sales growth and firm size are important determinants of profitability. Surprisingly, asset tangibility consistently has a negative relationship with profitability. For small firms, our results indicate that sales growth and firm size are important factors driving firm value (Tobin’s Q). Yet, the same variables do not appear to drive the value of large firms. |
| Keywords: | Capital structure, leverage, firm value, profitability, Kenya |
| JEL: | G30 G32 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57116&r=bec |
| By: | Fiocco, Raffaele; Gilli, Mario |
| Abstract: | We investigate regulation as the outcome of a bargaining process between a regulator and a regulated firm. The regulator is required to monitor the firm’s costs and reveal its information to a political principal (Congress). In this setting, we explore the scope for collusion between the regulator and the firm, which results in the manipulation of the regulator’s report on the firm’s costs to Congress. The firm’s bene.t of collusion arises from the higher price the efficient firm is allowed to charge when the regulator reports that it is inefficient. However, a higher price reduces the gains from trade the parties can share in the bargaining process. As a result of this trade-off, the efficient firm has a stake in collusion only if the regulator’s bargaining power in the regulatory relationship is relatively high. Then, we derive the optimal institutional response to collusion and characterize the conditions under which allowing collusion is desirable. |
| Keywords: | asymmetric information; auditing; bargaining; collusion; regulation. |
| JEL: | D73 D82 L51 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:466&r=bec |
| By: | Cardamone, Paola; Pupo, Valeria; Ricotta, Fernanda |
| Abstract: | The aim of this paper is to assess the effect on firm total factor productivity of the university research. Since the impact of universities on firms’ performance is subtle and complex, we verify whether territorial context, sector and firm size may influence this relationship. Results show that university R&D does not seem to affect Italian firm productivity. However, if we consider geographical location and sector, we find that university activities have a positive effect on the performance of firms located in the North of Italy or operating in the specialised supplier sector. Several robustness checks confirm the significant role played by universities above all in the North of Italy. The policy implications of these findings are discussed. |
| Keywords: | University, R&D, Total Factor Productivity |
| JEL: | C21 D24 O30 |
| Date: | 2014–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57034&r=bec |
| By: | Gomes, Pedro Maia (Universidad Carlos III de Madrid); Kuehn, Zoë (Universidad Autónoma de Madrid) |
| Abstract: | Countries that have relatively fewer workers with a secondary education have smaller firms. The shortage of skilled workers limits the growth of more productive firms. Two factors influence the availability of skilled workers: i) the education level of the workforce and ii) large public sectors that predominantly hire individuals with a better education. We set up a model economy with a government and private firm formation where production requires unskilled and skilled jobs. Workers with a secondary education are pivotal as they can perform both types of jobs. We find that level of education and public sector employment account for 40-45% of the differences between the United States and Mexico in terms of average firm size, GDP per capita, and GDP per hour worked. We also show that the impact of public employment on skill premiums and productivity measures depends on the skill bias in public hiring. |
| Keywords: | firm size, educational attainment, skill complementarities, public employment, college premium, high school premium |
| JEL: | J24 J45 E24 H30 O11 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8268&r=bec |
| By: | Sophia Chen |
| Abstract: | I study whether firms' reliance on intangible assets is an important determinant of financing constraints. I construct new measures of firm-level physical and intangible assets using accounting information on U.S. public firms. I find that firms with a higher share of intangible assets in total assets start smaller, grow faster, and have higher Tobin’s q. Asset tangibility predicts firm dynamics and Tobin’s q up to 30 years but has diminishing predicative power. I develop a model of endogenous financial constraints in which firm size and value are limited by the enforceability of financial contracts. Asset tangibility matters because physical and intangible assets differ in their residual value when the contract is repudiated. This mechanism is qualitatively important to explain stylized facts of firm dynamics and Tobin’s q. |
| Keywords: | Intangible capital;Corporate finance;Corporate investment;Commercial borrowing;Assets;Depreciation;Debt financing;Contracts/Agreements/Leases;Econometric models;Financial constraints, intangible assets, firm dynamics, Tobin’s q |
| Date: | 2014–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/88&r=bec |
| By: | Kashcheeva, Mila; Tsui, Kevin K. |
| Abstract: | International politics affects oil trade. But does it affect the oil-exporting developing countries more? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine how these firms respond to changes in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To the extent that developing countries have higher hold-up risks because of their weaker institutions, the political effect on oil trade should be more significant in the developing world. We find that oil import decisions are indeed more elastic when firms import from developing countries, although the reverse is true in the short run. Our results suggest that international politics can affect oil revenue and hence long-term development in the developing world. |
| Keywords: | Developing countries, United States, International trade, Exports, Petroleum industry, International relations, Foreign investments, Energy resources, International politics, FDI-based imports, Hold-up risk, Energy security |
| JEL: | F13 F51 F59 Q34 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper459&r=bec |
| 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 analyze this pattern, we incorporate directed labor market search into a dynamic model of international trade with heterogeneous ï¬rms and homogeneous workers. Wage inequality across and within ï¬rms results from their different hiring needs along their life cycles and the convexity of their adjustment costs. The interaction between wage posting and ï¬rms’ growth process allows us to explain some recent empirical regularities on ï¬rm and labor 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 ï¬rm dynamics and aggregate labor market outcomes. Focusing on the period 1996-2007, we ï¬nd that neither trade nor key features of the Hartz labor 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 Labor Market Regulation |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:14/05&r=bec |
| By: | Kashcheeva, Mila; Tsui, Kevin K. |
| Abstract: | International politics affects oil trade. But why? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine what kinds of firms are more responsive to change in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To test this hold-up risk hypothesis, we investigate heterogeneity in responses by matching transaction-level import data with firm-level worldwide reserves. Our results show that long-run oil import decisions are indeed more elastic for firms with oil reserves overseas than those without, although the reverse is true in the short run. We interpret this empirical regularity as that while firms trade in the spot market can adjust their imports immediately, vertically-integrated firms with investment overseas tend to commit to term contracts in the short run even though they are more responsive to changes in international politics in the long run. |
| Keywords: | United States, International trade, International relatiolns, Petroleum industry, Imports, Foreign investments, Energy resources, International politics, FDI-based imports, Hold-up risk, Energy security |
| JEL: | F13 F51 F59 Q34 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper458&r=bec |
| By: | Flach, Lisandra; Irlacher, Michael |
| Abstract: | This paper studies the innovation strategies of multi-product firms in industries with different scope for product differentiation. In a simple model of multi-product firms, we show that returns to product versus process innovation are industry-specific. Demand and cost linkages induce a natural distinction between the returns to product and process innovation. In highly differentiated industries, the cannibalization effect is lower and, therefore, firms invest more in product innovation. In homogeneous industries, firms internalize intra-firm spillover effects and invest more in process innovation. We test the predictions from the model using Brazilian firm-level data, with information on investment efforts over time. Following a major exchange rate devaluation, firms have better access to foreign markets and exploit economies of scale in innovation. However, detailed information on product and process innovation allows us to evaluate differential effects across industries. We con.rm the predictions from the theoretical model and show that the type of innovation depends on the industry scope for differentiation. |
| Keywords: | Multi-Product Firms; Innovation; Product Differentiation; Cannibalization Effect; Spillovers; Globalization |
| JEL: | F12 F14 L25 |
| Date: | 2014–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:21022&r=bec |
| By: | Caroline Mothe; Uyen T. Nguyen-Thi; Phu Nguyen-Van |
| Abstract: | We empirically investigate the pattern of complementarity between four organizational practices. Firm-level data were drawn from the Community Innovation Survey (CIS) carried out in 2008 in Luxembourg. Supermodularity tests confirm the crucial role of organizational innovation in raising firms’ technological innovation. The pattern of complementarity between organizational practices differs according to the type of innovation, i.e. product or process innovation, but also according to whether the firm is in the first stage of the innovation process (i.e. being innovative or not) or in a later stage (i.e. innovation performance in terms of sales of new products). |
| Keywords: | Complementarity, Organizational innovation, Substitution, Supermodularity, Technological innovation. |
| JEL: | D22 O32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2014-12&r=bec |
| By: | Langenmayr, Dominika; Lester, Rebecca |
| Abstract: | We study whether the corporate tax system provides incentives for risky firm investment. We first model the effects of corporate tax rates and tax loss offset rules on firm risk-taking. Testing the theoretical predictions, we find that firm risk-taking is positively related to the length of tax loss periods. This result occurs because the loss rules shift a portion of investment risk to the government, inducing firms to increase their overall level of risk-taking. Moreover, the corporate tax rate has a positive effect on risk-taking for firms that can expect to use their tax losses, and a negative effect for those that cannot. Thus, the effect of taxes on risky investment decisions varies among firms, and its sign hinges on firm-specific expectations of future tax loss recovery. |
| Keywords: | Corporate taxation; firm risk-taking; net operating losses |
| JEL: | H25 H32 G32 |
| Date: | 2014–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:20977&r=bec |