nep-bec New Economics Papers
on Business Economics
Issue of 2014‒09‒05
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Firm Volatility in Granular Networks By Stijn Van Nieuwerburgh; Hanno Lustig; Bryan Kelly
  2. Learning to Export from Neighbors By Fernandes, Ana; Tang, Heiwai
  3. Supplier Fixed Costs and Retail Market Monopolization By Stéphane Caprice; Vanessa von Schlippenbach; Christian Wey
  4. CSR related management practices and Firm Performance: An Empirical Analysis of the Quantity-Quality Trade-off on French Data By Patricia Crifo; Marc-Arthur Diaye; Sanja Pekovic
  5. Going granular: The importance of firm-level equity information in anticipating economic activity By Filippo di Mauro; Filippo di Mauro, Fabio Fornari
  6. News Driven Business Cycles: Insights and Challenges By Franck Portier
  7. Relaxing the Financial Constraint: The Impact of Banking Sector Reform on Firm Performance - Emerging Market Evidence from Turkey By Can Erbil; Kit Baum; Ferhan Salman
  8. Productivity Shocks, Dynamic Contracts and Income Uncertainty By Thibaut Lamadon
  9. On business cycles of product variety and quality By Masashige Hamano
  10. Natural Disaster and Natural Selection By UCHIDA Hirofumi; MIYAKAWA Daisuke; HOSONO Kaoru; ONO Arito; UCHINO Taisuke; UESUGI Iichiro
  11. The Margins of Global Sourcing: Theory and Evidence from U.S. Firms By Teresa Fort; Felix Tintelnot; Pol Antras
  12. Optimal transport and trade policy under Bertrand competition in the presence of restricted geographical condition By Normizan Bakar

  1. By: Stijn Van Nieuwerburgh (NYU Stern School of Business); Hanno Lustig (Anderson School of Business); Bryan Kelly (University of Chicago)
    Abstract: We propose a network model of firm volatility in which the customers' growth rate shocks influence the growth rates of their suppliers, larger suppliers have more customers, and the strength of a customer-supplier link depends on the size of the customer firm. Even though all shocks are i.i.d., the network model produces firm-level volatility and size distribution dynamics that are consistent with the data. In the cross section, larger firms and firms with less concentrated customer networks display lower volatility. Over time, the volatilities of all firms co-move strongly, and their common factor is concentration of the economy-wide firm size distribution. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions.
    Date: 2014
  2. By: Fernandes, Ana (University of Exeter); Tang, Heiwai (Johns Hopkins University and CESIfo)
    Abstract: This paper studies how learning from neighboring firms affects new exporters’ performance. We develop a statistical decision model in which a firm updates its prior belief about demand in a foreign market based on several factors, including the number of neighbors currently selling there, the level and heterogeneity of their export sales, and the firm’s own prior knowledge about the market. A positive signal about demand inferred from neighbors’ export performance raises the firm’s probability of entry and initial sales in the market but, conditional on survival, lowers its post-entry growth. These learning effects are stronger when there are more neighbors to learn from or when the firm is less familiar with the market. We find supporting evidence for the main predictions of the model from transaction-level data for all Chinese exporters from 2000 to 2006. Our findings are robust to controlling for firms’ supply shocks, countries’ demand shocks, and city-country fixed effects.
    Keywords: export; sales
    JEL: F1 F2
    Date: 2014–06–01
  3. By: Stéphane Caprice; Vanessa von Schlippenbach; Christian Wey
    Abstract: Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms' fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes.
    Keywords: Fixed costs, vertical contracting, monopolization
    JEL: L13 L14 L42
    Date: 2014
  4. By: Patricia Crifo; Marc-Arthur Diaye; Sanja Pekovic
    Abstract: This paper analyzes how different combinations of Corporate Social Responsibility (CSR) dimensions affect corporate economic performance. We use various dimensions of CSR to examine whether firms rely on different combinations of CSR, in terms of quality versus quantity of CSR practices. Our empirical analysis based on an original database including 10,293 French firms shows that different CSR dimensions in isolation impact positively firms’ profits but their effect in term on intensity varies among CSR dimensions. Moreover, the findings on the qualitative CSR measure, based on interaction between its dimensions, show that the substitutability of these dimensions is highly significant for firm performance. However, in terms of the intensity, those interactions produce differential effects.
    Keywords: corporate social responsibility, firm performance, substitutability, complementarity, trade-off, simultaneous equations models,
    Date: 2014–07–01
  5. By: Filippo di Mauro; Filippo di Mauro, Fabio Fornari
    Abstract: The paper attempts to verify whether equity returns of individual firms, and their realized volatilities, improve the in-sample and out-of-sample predictability of the US business cycle, as measured by the IP index VAR analysis and tests for forecasting ability The equity returns of individual firms, and their realized volatilities, are shown to improve the in-sample and out-of-sample predictability of the US business cycle, as measured by the IP index. In fact, significant declines in the root mean squared errors (RMSEs) are found when these variables are added to aggregate financial variables and selected macroeconomic indicators. Overall, to the aim of forecasting, there is a noticeable swing in the relative importance of individual firms across time, although firms that become key predictors of economic activity in a given month continue to do so for around six months, on average, bringing support to the idea that there is structure in the information that they convey. Unconditionally, belonging to a given sector does not boost the predictive power of firms, but we find that it becomes important for example around periods of recessions. Balance sheet data show that predictive ability of the firms is associated with features as performance, liquidity, the size of the foreign activity. Firm size also matters, as suggested by recent literature (Gabaix, 2011), although it is not - as put forward there - the only indicator to prevail.
    Keywords: European countries, Forecasting and projection methods, Microsimulation models
    Date: 2014–07–03
  6. By: Franck Portier (Toulouse School of Economics)
    Abstract: There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating its relevance. In particular, we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations, while at the same time we emphasize the many challenges that must be addressed before a proper assessment of its role in business cycles can be established.
    Date: 2014
  7. By: Can Erbil; Kit Baum; Ferhan Salman
    Abstract: We examine the impact of banking reform and financial crisis of 2001 on non-financial firm dynamics. Our analysis integrates the two lines of literature on financial liberalization, banking reform and access to capital and banking competition, which were addressed earlier by Bertrand, Schoar and Thesmar (2007) and Cetorelli and Strahan (2006). Our unique firm level survey data from Turkey sheds light on market structure and firm performance. We find that increased banking competition for credit along with banking concentration and financial crisis severely affects access to capital. Moreover, this effect is more pronounced with varying firm size. See above See above
    Keywords: Turkey, Finance, Finance
    Date: 2013–06–21
  8. By: Thibaut Lamadon (University College London)
    Abstract: This paper examines how employer and worker specific productivity shocks transmit to wage and employment in an economy with search frictions and firm commitment. I develop an equilibrium search model with worker and firm shocks and characterize the optimal contract offered by competing firms to attract and retain workers. In equilibrium risk-neutral firms offer risk-averse workers contingent contracts where payments are back-loaded in good times and front-loaded in bad ones: the combination of search frictions, productivity shocks and private worker actions results in partial insurance against firm and worker shocks. I estimate the model on matched employer-employee data from Sweden, using information about co-workers to separately identify firm specific and worker specific earnings shocks. Preliminary estimates suggest that firm level shocks are responsible for about 20% of permanent income fluctuations, the remaining being accounted for by individual level shocks (30% to 40%) and by job mobility (40% to 50%). The wage contract attenuates 80% of individual productivity shocks but passes through 30% of firm productivity fluctuations.
    Date: 2014
  9. By: Masashige Hamano
    Abstract: This paper explores the role played by product variety and quality in a real business cycle model.Firms are heterogeneous in terms of their specific quality as well as productivity level. Firms which have costly technology enter in the period of high aggregated demand and produce high quality goods. The average quality level and the number of available varieties are procyclical as in the data. The model can replicate the observed inflationary bias in the conventional CPI due to a rise in the number of new product varieties and quality.
    Keywords: US, Business cycles, General equilibrium modeling
    Date: 2014–07–03
  10. By: UCHIDA Hirofumi; MIYAKAWA Daisuke; HOSONO Kaoru; ONO Arito; UCHINO Taisuke; UESUGI Iichiro
    Abstract: In this paper, we investigate whether natural selection works for firm exit after a massive natural disaster. By using a unique data set of more than 84,000 firms after the Tohoku Earthquake, we examined the impact of firm efficiency on firm bankruptcy both inside and outside of the earthquake-affected areas. We find that more efficient firms are less likely to go bankrupt both inside and outside of the affected areas, which indicates the existence of natural selection. However, we also find that firms located inside the earthquake-affected areas are less likely to go bankrupt than those located outside of the areas. We also applied the same methodology to the case of the Kobe Earthquake, and find qualitatively similar results.
    Date: 2014–08
  11. By: Teresa Fort (Tuck School of Business, Dartmouth); Felix Tintelnot (University of Chicago); Pol Antras (Harvard University)
    Abstract: This paper begins by unveiling a series of systematic patterns in the intensive and extensive margins of U.S. imports that suggests that selection into importing is potentially as important in explaining aggregate imports as selection into exporting is in explaining aggregate exports. Our empirical analysis makes use of firm-level import and production data from the U.S. Census Bureau for the year 2007. More specifically, we match detailed information on firm-level imports by country of origin with production and sales data for these firms. We first replicate standard results showing that U.S. firms that record a positive volume of imports appear to be more productive than U.S. firms that source inputs only domestically. We next follow the approach in Bernard et al. (2007, 2009) and decompose aggregate U.S. imports by country of origin into an extensive and intensive margin component, and explore the relative importance of these two margins in explaining the cross-section of U.S. import volumes. We also provide an `anatomy' of U.S. imports along the lines of Eaton et al. (2011). Overall, the results we find very much resonate with those obtained by other authors when studying the intensive and extensive margins of exports. These stylized facts motivate the development of a model in which relatively productive firms self-select into importing from particular markets based on their profitability and country-specific variables that do not affect firms differentially. Our theoretical framework is a quantifiable multi-country sourcing model in the spirit of Antras and Helpman (2004). In order to tractably handle multiple sourcing countries for a firm's importing decisions, we follow Tintelnot (2013) and embed the stochastic specification of technology of Eaton and Kortum (2002) inside each individual firm. In the model, an industry is populated by a continuum of heterogeneous firms each producing a differentiated final-good variety. Production requires combining intermediate inputs, which can be bought from any country in the world. Nevertheless, adding a country to the set of countries a firm is able to import from requires incurring a market-specific sunk cost. As a result, relatively unproductive firms naturally opt out of importing from certain countries that are not particularly attractive sources of inputs. Once a firm has determined the set of countries from which it has secured the ability to source inputs -- which we refer to as its global sourcing strategy -- it then learns the various firm-specific efficiency levels with which each input can be produced in each of these `active' countries. These efficiency levels are assumed to be drawn from an extreme-value Frechet distribution, as in Eaton and Kortum (2002). The model delivers a simple closed-form solution for the profits of the firm as a function of its sourcing potential, which in turn is a function of the set of countries from which a firm has invested in being able to import as well as of the characteristics (wages, trade costs, and average technology) of these countries. The sourcing potential of a firm is an increasing function of the number of countries from which it has gained the ability to source. Intuitively, by enlarging that set, the firm benefits from greater competition among suppliers, and thereby lowers the effective cost of its intermediate input bundle. The choice of a sourcing strategy therefore trades off lower variable cost of production against the greater fixed costs associated with a more complex global sourcing strategy. A key characteristic of the derived profit function is that the marginal gain in profits associated with adding a country to set of potential sources of inputs generally depends on the number and characteristics of the other countries in this set. This contrasts with standard models of selection into exporting featuring constant marginal costs, in which the decision to service a given market is independent of that same decision in other markets. Whether the decisions to source from different countries are complements or substitutes crucially depends on a parametric restriction involving the elasticity of demand faced by the final-good producer and the Frechet parameter governing the variance in the distribution of firm-specific input efficiencies across locations. Selection into importing features complementarity across markets, whenever demand is relatively elastic (so profits are particular responsive to variable cost reductions) and whenever input efficiency levels are relatively heterogeneous across markets (so that the reduction in expected costs achieved by adding an extra country in the set of active locations is relatively high). Conversely, when demand is inelastic or input efficiency draws are fairly homogeneous, the addition of country to a firm's global sourcing strategy instead reduces the marginal gain from adding other locations. In such a situation, the problem of the firm optimally choosing its sourcing strategy is extremely hard to characterize, both analytically as well as quantitatively, since it boils down to solving a combinatorial problem with $2^J$ elements with little guidance from the model. The case with complementary sourcing decisions turns out to be much more tractable and delivers sharp results reminiscent of the broad patterns discussed above. In particular, in that case, we can use standard tools from the monotone comparative statics literature to show that the sourcing strategies of firms follow a strict hierarchical structure in which the number of countries in a firm's sourcing strategy is (weakly) increasing in the firm's core productivity level. Furthermore, we can show that the number of firms sourcing from a particular country is (weakly) increasing in the cost attractiveness of that location, with that attractiveness being shaped by the wages, technology, transport costs and fixed costs of offshoring associated with that sourcing location. We are currently in the process of structurally estimating the model and performing counterfactual exercises.
    Date: 2014
  12. By: Normizan Bakar
    Abstract: To analyse the optimal landlocked and coastal countries' policies in an international imperfect competition. In particular the model shows the rivalry condition of the landlocked country's firm and coastal country's firm. In addition, we incorporates the interdependent condition of the landlocked country on its coastal seaport.The model assumes the three-stage game of international duopolists where; At first stage governments determine the trade policies; at the second stage governments determine the transport policies;and at the third stage the firms determine the price.The transport policy, i.e. toll fee by the coastal country (transit country) is positive.
    Keywords: landlocked countries, Trade issues, Other issues
    Date: 2013–09–05

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