nep-bec New Economics Papers
on Business Economics
Issue of 2014‒08‒20
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Agglomeration and Firm Turnover By Marjan Nasir
  2. Entrepreneurial leadership, capabilities and growth: A review of existing evidence By Andy Lockett; James Hayton; Deniz Ucbasaran; Kevin Mole; Gerard P. Hodgkinson
  3. Management Influence on Investors: Evidence from Shareholder Votes on the Frequency of Say on Pay By Ferri, Fabrizio; Oesch, David
  4. Equity market misvaluation, financing, and investment By Toni Whited; Missaka Warusawitharana
  5. Optimal Leniency Programs when Firms Have Cumulative and Asymmetric Evidence By Marc Blatter; Winand Emons; Silvio Sticher
  6. Firm dynamics and job creation in the UK: taking stock and developing new perspectives By Michael Anyadike-Danes; Mark Hart; Jun Du
  7. Governance, Firm Size and Innovative Capacity: Regional Empirical Evidence for Germany By Berlemann, Michael; Jahn, Vera
  8. Governance in Network Industries: Lessons Learnt from New Institutional Economics By Jean-Michel Glachant
  9. Enterprise According to Managerial Theories of the Firm By Elzbieta Rogalska
  10. Niche Firms, Mass Markets, and Income Across Countries: Accounting for the Impact of Entry Costs By Pedro Bento
  11. Heterogeneity and distance. Some propositions on how differences across regions, firms and functions affect the role of distance in FDI location decisions. By Davide Castellani; Giulio Giangaspero; Antonello Zanfei
  12. CEO Age and Real Earnings Management By Dorra Talbi
  13. News about Aggregate Demand and the Business Cycle By Jang-Ting Guo; Anca-Ioana Sirbu; Mark Weder
  14. Who do Unions Target? Unionization over the Life-Cycle of U.S. Businesses By Emin Dinlersoz; Henry Hyatt; Jeremy Greenwood

  1. By: Marjan Nasir (Lahore School of Economics, Lahore, Pakistan.)
    Abstract: The geographic and industrial concentration of firms affects firm turnover, as highlighted in research on industrial organization. This study conducts a firm-level analysis to determine the impact of agglomeration on firm entry and exit in domestic industries in Punjab, Pakistan. The study also illustrates how some industries exist in clusters while others are highly dispersed. The results suggest that firm entry and exit is higher in highly agglomerated industries.
    Date: 2013
  2. By: Andy Lockett (Warwick University Business School); James Hayton (Warwick University Business School); Deniz Ucbasaran (Warwick University Business School); Kevin Mole (Warwick University Business School); Gerard P. Hodgkinson (Warwick University Business School)
    Abstract: Our knowledge of the factors influencing SME growth has increased dramatically over the last two decades. Scholars have pointed to factors influencing business growth intentions; yet we still have limited understanding of the context and conditions under which the leaders of SMEs view business growth as desirable and feasible. Leadership behaviours and management activities through interactions and complementarities among individuals, processes and structures create growth capabilities; moreover, existing evidence suggests a positive relationship between growth capabilities and growth; however, much less is known about the determinants of these capabilities. In this review we focus on entrepreneurial leadership and capabilities for growth. Our review highlights four concepts: leadership, dynamic firm capabilities, substantive capabilities and growth outcomes. We examine evidence for the processes, routines and resources underlying substantive growth capabilities. We review evidence relating managerial cognitions, motivations and decisions to invest in growth. We review what is known about the dynamic capabilities that support the sustained pursuit of new opportunities and highlight areas of consensus and contention.
    Keywords: capabilities, leadership, growth capabilities, dynamic capabilities, firm growth
    JEL: L26 M10 M13
    Date: 2013–04–02
  3. By: Ferri, Fabrizio; Oesch, David
    Abstract: The literature on shareholder voting has mostly focused on the influence of proxy advisors on shareholder votes. We exploit a unique empirical setting enabling us to provide a direct estimate of management’s influence. Analyzing shareholder votes on the frequency of future say on pay votes, we find that a management recommendation for a particular frequency is associated with a 26% increase in voting support for that frequency. Additional tests suggest that the documented association is likely to capture a causal effect. Management influence varies across firms and is smaller at firms where perceived management credibility is lower. Compared to firms adopting an annual frequency, firms following management’s recommendation to adopt a triennial frequency are significantly less likely to change their compensation practices in response to an adverse say on pay vote, consistent with the notion that a less frequent vote results in lower management accountability.
    Keywords: Say on pay, say when on pay, shareholder votes, management influence, CEO compensation, shareholder activism
    JEL: G34 G38 J33 M12
  4. By: Toni Whited (University of Rochester); Missaka Warusawitharana (Board of Governors of the Federal Reserv)
    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, cash, or 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 ts a broad set of data moments in large heterogeneous samples and across industries. Our estimation results imply that firms respond to misvaluation by adjusting financing more than investment. Managers' rational responses to misvaluation increase shareholder value by up to 3%.
    Date: 2014
  5. By: Marc Blatter; Winand Emons; Silvio Sticher
    Abstract: An antitrust authority deters collusion using fines and a leniency program. Unlike in most of the earlier literature, our firms have imperfect cumulative evidence of the collusion. That is, cartel conviction is not automatic if one firm reports: reporting makes conviction only more likely, the more so, the more firms report. Furthermore, the evidence is distributed asymmetrically among firms. Asymmetry of the evidence can increase the cost of deterrence if the high-evidence firm chooses to remain silent. Minimum-evidence standards may counteract this effect. Under a marker system only one firm reports; this may increase the cost of deterrence.
    Keywords: antitrust; cartels; deterrence; leniency; evidence
    JEL: D43 K21 K42 L40
    Date: 2014–07
  6. By: Michael Anyadike-Danes (Aston University Business School); Mark Hart (Aston University Business School); Jun Du (Aston University Business School)
    Abstract: WP6 A recurrent theme in the discussion of attempts to stimulate economic recovery in the UK is a recognition of the need to unlock the growth potential of the private sector. We survey some of the recent evidence on job creation and destruction built on the conventional accounting framework which leads to consider the particular contribution of ‘high growth firms’ (as defined by the OECD). Our argument is that neither job creation and destruction accounts nor the focus on high growth firms provide much insight into the key drivers of firm and job dynamics. A rather more informative approach can be built upon the ‘5 brutal facts’ of UK business demography: a) about 200 thousand firms are born each year, b) most new born firms are very small - 90% with less than five employees, c) after a decade more than 70% of new born firms are dead; d) the new born firms at birth have around one million jobs, those that survive a decade employ less than half a million, e) of those which survive a decade, around three quarters born with less than five employees, still have less than five employees. We knew already from the standard accounting by the job creation and destruction components that births and deaths of firms are responsible for a considerable amount of churn in the business population, but what the ‘brutal facts’ bring to the fore is that much of this churn is age-related. It provides a pointer to the dynamic underpinning to the evolution of the stock of firms in the economy over time: as each new ‘wave’ of firms is born, firms from earlier waves (younger rather than older) die away. Whilst this more thoroughly dynamic view has an obvious implication for policy – it cautions against expecting too much of policies which focus on promoting a greater volume of firm births. But before we can say more we need to be able to complement our appreciation of the implications of survival with a better understanding of growth. We will then be able to inform the design of a robust set of policy interventions.
    Keywords: job creation and destruction, firm births, firm post-entry performance
    JEL: L25 L26 M13
    Date: 2013–04–06
  7. By: Berlemann, Michael (Helmut Schmidt University, Hamburg); Jahn, Vera (Helmut Schmidt University, Hamburg)
    Abstract: Successful innovation is a precondition for economic prosperity. While various potential determinants of innovative activity have been considered, little empirical evidence is yet available for the influence of firm governance issues. This paper aims at filling this gap in the literature by studying whether the relative importance of owner-managed small and medium sized enterprises has an effect on regional innovative capacity. We therefore combine patent data with data from the firm database of Creditreform, containing information on the governance structure of regional operating enterprises. Using a cross section of German NUTS-3-regions, we identify a significantly positive relation between the relative importance of owner-managed SMEs and innovative capacity. This finding is highly robust when controlling for spatial correlations.
    Keywords: innovation; owner-managed firms; SMEs; Germany
    JEL: C21 D23 O31
    Date: 2014–07–28
  8. By: Jean-Michel Glachant
    Abstract: Institutional economics provide a useful frame to navigate the fuzzy world of governance structures. Of course markets, firms and relational contracting (or Hybrid Forms) are alternative tools which can complement or substitute each other to frame transactions made among economic agents. However, firms are not a single piece of governance structure as they might handle different transactions very differently. Either inside the firm, such as the day-to-day operational workflow, the hazards of R&D discovery and trials, the long term production of skills and knowledge through organized definition and allocation of tasks, the coordination between today’s and tomorrow’s operations e.g. between the various levels of management and the interactions with the stockholders, or outside the firm in the interactions with suppliers, customers bankers and the social or professional communities. Truly, those firms are all conglomerates of several governance sub-structures. So are the markets conglomerates of several governance mechanisms. It is why we are able to think about designing/redesigning the markets we have and to move to get the markets that we would like to have. Knowing all that: how to apply it to the existing Network Industries?
    Keywords: Institutional economics, governance structures, markets, firms, network industries
    Date: 2014–07
  9. By: Elzbieta Rogalska (University of Warmia and Mazury, Poland)
    Abstract: The dominant role of corporations in modern economy and observed widespread oligopolization are the sources of practical need for the theoretical concept of the enterprise explaining the operations of large companies, with a particular focus on their primary objectives and aims, and the role they play in the markets. In this paper three concepts of the enterprise are discussed that take into account the changing conditions of the company. All the discussed concepts were formulated based on the managerial theory approach: the model of an enterprise that maximizes the sustainable growth rate of R. Marris, the model of an enterprise that maximizes revenue from the sales of W.J. Baumol and the model of O.E. Williamson that describes the preferences of managers in discretionary decision-making process. The aim of the publication is to present the managerial theory of the firm, which is alternative to traditional neoclassical concept of enterprise, their critical evaluation and an indication of application possibilities.
    Keywords: balanced rate of growth of the firm, Penrose effect, expense preference, interdependence of decisions
    JEL: D21 D24
    Date: 2013–03
  10. By: Pedro Bento (West Virginia University, College of Business and Economics)
    Abstract: I develop a model of monopolistic competition in which I distinguish between niche markets and mass markets, in the spirit of Holmes and Stevens (2013). Firms choose between entering a small niche market with high markups or a large mass market with low markups. Entry costs have a much greater impact on output in the niche market as the gains to specialization are high, relative to the mass market where varieties are highly substitutable. Calibrated to match data from U.S. manufacturing, the model generates an elasticity of total factor productivity with respect to entry costs more than twice that in a model that abstracts from heterogeneous markets. I use data on entry costs across countries to show entry costs alone can account for half of the cross-country variation in productivity and income per worker, consistent with recent empirical estimates.
    Keywords: aggregate productivity, niche, mass market, entry costs, regulation
    JEL: O1 O4
    Date: 2013–10
  11. By: Davide Castellani (Department of Economics, Finance and Statistics, Università di Perugia); Giulio Giangaspero (Department of Social Sciences and Economics - DiSS - Sapienza University of Rome - Italy); Antonello Zanfei (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")
    Abstract: The idea that distance may hinder cross-border economic activities has a long tradition in both international trade and international business studies. And the need to consider distance as a multifaceted concept including both spatial and institutional features has also been increasingly acknowledged in the literature. In this paper we argue that the complexities of distance factors and their impact on FDIs can be best appreciated when considered across regions, across firms and across functions. We present some developments in extant literature that account for heterogeneity in each of these three directions, and draw some implications for the analysis of FDIs location decisions.
    Keywords: FDIs, Multinationals, Distance, Heterogeneity.
    JEL: F23 O33
    Date: 2013
  12. By: Dorra Talbi
    Abstract: The purpose of this study is to verify the impact of CEO Age on real earnings management. Our empirical study is based on a sample of 7481 American firms from 2000 to 2009. Firstly we document a positive and significant relation between CEO Age and real earnings management and as a supplement analysis we find that this relation is not monotonic, it have a U-Shape with an inflexion point equal to 48 years. Our study has useful implications for financial statement users and accounting profession. Firstly, the different stakeholders of firms managed by an old CEO should be more careful when evaluating the quality of firm’s financial statements. In addition, external auditors and SEC should be more diligent when dealing with financial reports elaborated by old CEOs. The results of this paper confirm that CEO characteristics are determinants in financial reporting quality and that financial statements users and accounting profession should take this on consideration.
    Keywords: Real earnings management, CEO Age, managerial myopia, risk-taking, behavior.
    Date: 2014–07–24
  13. By: Jang-Ting Guo (University of California, Riverside); Anca-Ioana Sirbu (Department of Economics, West Virginia University); Mark Weder (University of Adelaide)
    Abstract: We show that an otherwise standard one-sector real business cycle model with variable capital utilization and mild increasing returns-to-scale is able to generate qualitatively as well as quantitatively realistic aggregate fluctuations driven by news shocks to future consumption demand. In sharp contrast to many studies in the existing expectations-driven business cycle literature, our results do not rely on non-separable preferences or investment adjustment costs.
    Keywords: News Shocks, Aggregate Demand, Business Cycles
    JEL: E32
    Date: 2012–09
  14. By: Emin Dinlersoz (Bureau of the Census); Henry Hyatt (Bureau of the Census); Jeremy Greenwood (University of Pennsylvania)
    Abstract: What type of businesses do unions target for organizing? A dynamic model of the union organizing process is constructed to answer this question. A union monitors establishments in an industry to learn about their productivity, and decides which ones to organize and when. An establishment becomes unionized if the union targets it for organizing and wins the union certification election. The model predicts two main selection effects: unions organizing occurs in larger and more productive establishments early in their life-cycles, and among the establishments targeted for organizing, unions are more likely to win elections in smaller and less productive ones. These predictions find support in union certification election data for 1977-2007 matched with data on establishment characteristics.
    Keywords: Unionization, Union Organizing, Union Certification Election, Diffusion of Unionization, Bayesian Learning, Productivity.
    JEL: J5 J50 J51 L11 L23 L25 L6 D24 D21
    Date: 2014–05

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