nep-bec New Economics Papers
on Business Economics
Issue of 2014‒09‒25
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Why do Russian firms invest abroad? A firm level analysis By Amar Iqbal ANWAR; Mazhar Yasin MUGHAL
  2. Equilibrium downstream mark-up and upstream free entry By Ioannis N. Pinopoulos
  3. Regulation, Competition, Diversification, Governance and Costs: An Empirical Analysis of Public Utility and Manufacturing Firms in Japan By Fumitoshi Mizutani; Eri Nakamura
  5. Independent directors: less informed, but better selected? New evidence from a two-way director-firm fixed effect model By Sandra Cavaco; Patricia Crifo; Antoine Reberioux; Gwenael Roudaut
  6. Financial constraints and firm exports: accounting for heterogeneity, self-selection and endogeneity By Angelo Secchi; Federico Tamagni; Chiara Tomasi
  7. Competition and Screening with Skilled and Motivated Workers By F. Barigozzi; N. Burani
  8. Multiproduct Firms, Product Scope and Productivity: Evidence from India’s Product Reservation Policy By Joshua Wilde; Ishani Tewari
  9. Putting the Blame on Governments: Why Firms and Governments have Failed to Advance the Guiding Principles on Business and Human Rights By Susan Ariel Aaronson; Ian Higham
  10. Offshoring and the Shortening of the Quality Ladder: Evidence from Danish Apparel By Valérie Smeets; Sharon Traiberman; Frederic Warzynski
  11. Managers’ External Social Ties at Work: Blessing or Curse for the Firm? By Leif Brandes; Marc Brechot; Egon Franck
  12. Imported Intermediates and Productivity: Does Absorptive Capacity Matter? A Firm-Level Analysis for Uruguay By Adriana Peluffo; Dayna Zaclicever
  13. Determinants of the Duration of European Appellate Court Proceedings in Cartel Cases By Florian Smuda; Patrice Bougette; Kai Hüschelrath
  14. Sickness Absence and Works Councils - Evidence from German Individual and Linked Employer-Employee Data By Daniel Arnold; Tobias Brändle; Laszlo Goerke
  15. Scale and Skill in Active Management By Lubos Pastor; Robert F. Stambaugh; Lucian A. Taylor
  16. Financial investment constraints. A panel threshold application to German firm level data. By Artur Tarassow
  17. Horizontal Mergers with Capital Adjustment: Workers' Cooperatives and the Merger Paradox By F. Delbono; L. Lambertini

  1. By: Amar Iqbal ANWAR; Mazhar Yasin MUGHAL
    Abstract: Why do Russian firms invest abroad? A firm level analysis
    Date: 2014–09
  2. By: Ioannis N. Pinopoulos (Department of Economics, University of Macedonia, Greece)
    Abstract: We consider a successive Cournot oligopoly model where firms freely enter into the upstream market. We show that, under specific conditions, a higher number of downstream firms can lead to a higher mark-up in the downstream market. Although downstream market power may increase, consumer prices still decrease with the number of downstream firms implying that higher market power does not necessarily imply lower consumer surplus.
    Keywords: Vertical relations; Cournot competition; Free entry; Market Power.
    JEL: L22
    Date: 2014–09
  3. By: Fumitoshi Mizutani (Graduate School of Business Administration, Kobe University); Eri Nakamura (Faculty of Economics, Shinshu University)
    Abstract: The main purpose of this study is to investigate how regulation, competition, governance structure, and business diversification strategy affect the cost structure of firms. By using 358 observations comprised of public utility firms and manufacturing firms from 1989 to 2002, we estimate the translog cost function. From our empirical analysis, the following results are obtained: (i) The regulation factor does not affect the cost structure. (ii) Compared with the regulation factor, the competition factor shows a quite clear effect on a firm' s cost reduction. (iii) As a company diversifies further from its core industry into other industries, all of the firm' s business costs increase, indicating an apparent lack of economies of scope. (iv) The governance factor has an important effect on a firm' s cost structure. As the ratio of foreign shareholders increases and there is more dependence on one main bank, the costs of a firm decrease.
    Keywords: Regulation, Competition, Governance, Diversification Strategy, Japanese Firms
    Date: 2013
  4. By: Jaan Masso; Kärt Rõigas; Priit Vahter
    Abstract: Export experience of managers and other top specialists is among the key drivers of export decisions in firms. We show evidence of this regularity based on employer-employee level data from the manufacturing industry in Estonia. We find that hiring managers and other high-wage employees with prior experience in exporting to a specific geographical region is associated with a higher probability of export entry to that region. However, there is little evidence of significant effects on export intensity. Notably, the relationship between export experience and a firm’s export decisions is usually stronger if the prior export experience is from an exporter that is located nearby in the product space. Our findings suggest that the contribution of prior trade experience of employees and the firm’s productivity as drivers of export market entry are of comparable magnitude.
    Keywords: export experience, export entry, labour mobility, learning-to-export
    JEL: F10 F14 J31
    Date: 2014
  5. By: Sandra Cavaco (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - Université Paris II - Panthéon-Assas : EA4442 - Sorbonne Universités); Patricia Crifo (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, UP10 - Université Paris 10, Paris Ouest Nanterre La Défense - Université Paris X - Paris Ouest Nanterre La Défense, CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal, EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Antoine Reberioux (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense, CREDDI/LEAD Université Antilles Guyane - Université des Antilles et de la Guyane); Gwenael Roudaut (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, AgroParisTech - AgroParisTech)
    Abstract: This paper develops a two-way director-firm fixed effect model to study the relationship between independent directors' individual heterogeneity and firm operating performance, using French data. This strategy allows considering and differentiating in a unified empirical framework mechanisms related to board functioning and to director selection. We first show that the independence status, netted out unobservable individual heterogeneity, is negatively related to performance. This result suggests that independent board members experience an informational gap compared to other affiliated members. However, we show that industry-specific expertise as well as informal connections inside the boardroom may help to bridge this gap. Finally, we provide evidence that independent directors have higher intrinsic ability as compared to affiliated board members, consistent with a reputation-based selection process.
    Keywords: independent director heterogeneity, information asymmetry, director selection, firm performance, two-way fixed effect model
    Date: 2014–09–03
  6. By: Angelo Secchi; Federico Tamagni; Chiara Tomasi
    Abstract: The paper examines the causal effect of financial constraints on firm exports. We exploit a firm-level proxy of constraints based on credit ratings and available for a large panel of Italian exporting and non exporting firms. Our estimation strategy allows to cure for self-selection into exports and endogeneity of financial constraints. At the same time, we can control for unobserved firm fixed effects both in the selection and in the export equation, thus identifying the effect on exports of within firm changes in financial constraints status. We find that financial constraints produce a sizable reduction in the value of firm foreign sales
    Keywords: financial constraints, firm exports, self-selection, endogeneity
    Date: 2014–09–09
  7. By: F. Barigozzi; N. Burani
    Abstract: We study optimal contracts offered by two firms competing for the exclusive services of one worker, who is privately informed about her ability and her motivation. Firms differ both in their production technology and in the mission they pursue and a motivated worker is keen to be hired by the mission-oriented firm. We find that the matching of worker types to firms is always Pareto-efficient. When the difference in firms’ technology is high, only the most efficient firm is active. When the difference is not very high, then agent types sort themselves by motivation: the mission-oriented firm hires motivated types and the profit-oriented firm employs non-motivated ones, independently of ability. Effort provision is higher when the worker is hired by the mission-oriented firm, but a compensating wage differential might exist: the motivated worker is paid less by the mission-oriented firm. Such an earnings penalty is driven entirely by motivation, is increasing in ability and is associated to low power of incentives.
    JEL: D82 D86 J31 M55
    Date: 2014–06
  8. By: Joshua Wilde (Department of Economics, University of South Florida); Ishani Tewari (Yale School of Management)
    Abstract: We provide novel evidence showing product scope dynamics within a firm is an important dimension of productivity growth. This channel is identified by leveraging the gradual dismantling of an Indian regulation that “reserved” hundreds of products for manufacture in the small-scale sector. Following the removal of these product market restrictions, product churning and productivity rose. Multiproduct firms who were never in the reserved sector drive this increase, suggesting that the reservation policy constrained their ability to achieve the optimal product mix. Our findings underscore the importance of incorporating heterogeneity at the product-firm level in assessing the impact of size-contingent regulation.
    Keywords: Productivity, Multiproduct Firms, India, Dereservation, Products
    JEL: O10 O25 O40 L50
    Date: 2014–09
  9. By: Susan Ariel Aaronson (Department of Economics/Institute for International Economic Policy, George Washington University); Ian Higham (EIRIS)
    Date: 2014–06
  10. By: Valérie Smeets; Sharon Traiberman; Frederic Warzynski
    Abstract: Recently a small and growing empirical literature has attempted to analyze the role that quality plays in our understanding of trade. In particular, the recent work of Khandelwal (2010) has brought the insights of structural IO models of demand to bear into trade data. Our work builds on this new structural literature; we use similar demand estimation techniques on a panel of Danish apparel firms from 1997 to 2010 in order to analyze how firms responded to China's entry to the WTO and the dismantling of the Multi-Fibre Agreement. We explore the implications of offshoring and import competition on the distribution of apparel quality within Denmark, and demonstrate the firm-level mechanisms that induced the observed aggregate changes. In particular, we show that the quality ladder tightens in response to trade shocks as initially low quality firms upgrade their quality relative to other firms while initially middle and high quality downgrade their output quality. An important qualification is that the quality of exports from the source country is a key determinant in both the uptake of offshoring and resultant decisions regarding quality. Finally, import competition appears to spur entry of higher quality firms and exit of lower quality producers. Nevertheless, the reallocation pattern is imperfect, suggesting that two sources of heterogeneity – the productivity and the quality margin - are key to understanding these patterns.
    Keywords: Quality;Offshoring;Firm Heterogeneity
    JEL: F14 D24
    Date: 2014–09
  11. By: Leif Brandes (Warwick Business School, University of Warwick); Marc Brechot (Department of Business Administration, University of Zurich); Egon Franck (Department of Business Administration, University of Zurich)
    Abstract: Existing evidence shows that decision-makers’ social ties to internal co-workers can lead to reduced firm performance. In this paper, we show that decision-makers’ social ties to external transaction partners can also hurt firm performance. Specifically, we use 34 years of data from the National Basketball Association and study the relationship between a team's winning percentage and its use of players that the manager acquired through social ties to former employers in the industry. We find that teams with “tie-hired-players” underperform teams without tie-hired-players by 5 percent. This effect is large enough to change the composition of teams that qualify for the playoffs. Importantly, we show that adverse selection of managers and teams into the use of tie-hiring procedures cannot fully explain this finding. Additional evidence suggests instead that managers deliberately trade-off private,tie-related benefits against team performance.
    Keywords: social relationships; social capital; principal-agent relationship; worker allocation; basketball
    JEL: D82 M51 Z13
    Date: 2014–05
  12. By: Adriana Peluffo (Instituto de Economía Facultad de Ciencias Económicas Universidad de la República); Dayna Zaclicever (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: International trade is considered a vehicle for technology diffusion, which in turn can induce productivity growth. Particularly, trade may give domestic firms access to a larger variety and/or better quality of intermediate or capital inputs in which new technologies are embodied. However, the lack of sufficiently skilled labour, an issue especially relevant for small developing countries, may prevent firms from taking advantage of these technologies. Using a panel of Uruguayan manufacturing firms covering the period 1997-2008, we explore the impact of imported inputs on firms’ productivity and evaluate whether the effect is mediated by the firm’s absorptive capacity (proxied by the proportion of skilled labour). We apply an indirect (two-stage) approach by first estimating firms’ productivity and then using impact evaluation techniques to analyze causality between imported inputs and productivity. Our results show that imported intermediates have an enhancing effect on Uruguayan firms’ productivity and absorptive capacity plays a role on this effect.
    Keywords: productividad, importaciones, capacidad de absorción
    JEL: F14 D24 O33
    Date: 2013–07
  13. By: Florian Smuda (ZEW Centre for European Economic Research; MaCCI Mannheim Centre for Competition and Innovation); Patrice Bougette (University of Nice Sophia Antipolis, France; GREDEG CNRS; LAMETA CNRS); Kai Hüschelrath (ZEW Centre for European Economic Research; MaCCI Mannheim Centre for Competition and Innovation)
    Abstract: The duration of appellate court proceedings is an important determinant of the efficiency of a court system. We use data of 234 firm groups that participated in 63 cartels convicted by the European Commission between 2000 and 2012 to investigate the determinants of the duration of the subsequent one- or two-stage appeals process. We find that while the speed of the first-stage appellate court decision depends on the court’s appeals-related workload, the complexity of the case, the degree of cooperation by the firms involved and the clarity of the applied rules and regulations, the second-stage appellate court proceedings appear to be largely unaffected by those drivers. We take our empirical results to derive conclusions for both firms that plan to file an appeal as well as public policy makers.
    Keywords: Law and economics, antitrust policy, cartels, appeals, European Union
    JEL: K21 K41 K42 L41
    Date: 2014–09
  14. By: Daniel Arnold (Institute for Labour Law and Industrial Relations in the EU, University of Trier); Tobias Brändle (Institut für Angewandte Wirtschaftsforschung (IAW), University of Tübingen); Laszlo Goerke (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: Using both household and linked employer-employee data for Germany, we assess the effects of non-union representation in the form of works councils on (1) individual sickness absence rates and (2) a subjective measure of personnel problems due to sickness absence as perceived by a firm's management. We find that the existence of a works council is positively correlated with the incidence and the annual duration of absence. We observe a more pronounced correlation in western Germany which can also be interpreted causally. Further, personnel problems due to absence are more likely to occur in plants with a works council.
    Keywords: Absenteeism, LIAB, personnel problems, sickness absence, SOEP, works councils
    JEL: J53 I18 M54
    Date: 2014–08
  15. By: Lubos Pastor (University of Chicago Booth School of Business); Robert F. Stambaugh (The Wharton School of the University of Pennsyvlania); Lucian A. Taylor
    Abstract: We empirically analyze the nature of returns to scale in active mutual fund management. We find strong evidence of decreasing returns at the industry level: As the size of the active mutual fund industry increases, a fund’s ability to out- perform passive benchmarks declines. At the fund level, all methods considered indicate decreasing returns, but estimates that avoid econometric biases are in- significant. We also find that the active management industry has become more skilled over time. This upward trend in skill coincides with industry growth, which precludes the skill improvement from boosting fund performance. Finally, we find that performance deteriorates over a typical fund’s lifetime. This result can also be explained by industry-level decreasing returns to scale.   
    Date: 2014
  16. By: Artur Tarassow (Universität Hamburg (University of Hamburg))
    Abstract: This paper attempts to test whether financial supply-side shifts explain the low-investment climate of private firms in Germany. The core contention is that a firm's financial position contributes to its access to external finance on credit markets. Special emphasizes is put on small and medium-sized enterprises as these are usually assumed to be more informationally opaque. The application of a non-linear panel threshold model makes it possible to group firms endogenously according to their financial position. Various observable balance sheet indicators such as leverage, interest coverage ratio or measures of solvency are used as potential threshold variables. The firm-level panel dataset covers the period between 2006 and 2012. We find strong evidence for a positive but non-linear nexus between cash flow and fixed investments, suggesting that financially fragile firms rely more heavily on internal funds. Surprisingly, firm size does not seem to be a relevant grouping variable.
    Keywords: Non-linear panel model, Firm investment, Corporate finance, Business cycle, Financial frictions, Credit rationing, Cash flow, Monetary policy
    JEL: C23 D24 E22 E30 G31
    Date: 2014–09
  17. By: F. Delbono; L. Lambertini
    Abstract: We study the incentives towards horizontal merger among firms when the amount of capital is the strategic variable. We focus on is workers' cooperatives, but our conclusions apply also to employment-constrained profit maximisers. Within a simple oligopoly model, we prove that the horizontal merger, for any merger size, is: (i) privately efficient for insiders as well as for outsiders; (ii) socially efficient if market size is large enough, even in the case of merger to monopoly.
    JEL: D43 L13 L21 L41
    Date: 2014–09

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