nep-bec New Economics Papers
on Business Economics
Issue of 2014‒10‒03
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. International Trade and Firm-Level Markups when Location and Quality Matter By Flora Bellone; Patrick Musso; Lionel Nesta; Frederic Warzynski
  2. Strategic Choice on Product Line in Vertically Differentiated Duopoly By Ryoma Kitamura; Tetsuya Shinkai
  3. Top Management Turnover and Corporate Governance in China: effects on innovation performance By Martha Prevezer; Lutao Ning; Yuandi Wang
  4. The cleansing effect of minimum wage : Minimum wage rules, firm dynamics and aggregate productivity in China By Sandra Poncet; Florian Mayneris; Tao Zhang
  5. CSR in an Asymmetric Duopoly with Environmental Externalities By L. Lambertini; A. Palestini; A. Tampieri
  6. Challenges of working with the Chinese NBS firm-level data By Loren BRANDT; Johannes VAN BIESEBROECK; Yifan ZHANG
  7. The Dynamic Adjustment of Firms and Workers to Foreign Trade By Oleg Itskhoki; Elhanan Helpman
  8. News about Aggregate Demand and the Business Cycle By Jang-Ting Guo; Anca-Ioana Sirbu; Mark Weder
  9. Strategic Disclosure of Demand Information by Duopolists: Theory and Experiment By Jos Jansen; Andreas Pollak
  10. Some Surprising Facts about Working Time Accounts and the Business Cycle By Almut Balleer; Britta Gehrke; Christian Merkl
  11. Adjusting Measures of Economic Output for Health: Is the Business Cycle Countercyclical? By Mark Egan; Casey Mulligan; Tomas Philipson
  12. Estimation of Firms' Default Rates in terms of Intangible Assets By Saiki Tsuchiya; Shinichi Nishioka
  13. The Personal Computer and Entrepreneurship By Fairlie, Robert

  1. By: Flora Bellone; Patrick Musso; Lionel Nesta; Frederic Warzynski
    Abstract: In this paper, we estimate firm-level markups and test some micro-level predictions of a model of international trade with heterogeneous firms and endogenous markups. Our theoretical framework is an extended version of the Melitz and Ottaviano (2008) (MO) model that features both quality and spatial differentiation across firms. In line with our model, we find that firm markups are positively related to firm productivity and negatively related to the toughness of local competition. Considering the relationship between firm markups and exports, we find evidence that markups are higher for exporters, what appears to indicate that the quality-enhancing channel overbalances the price-depressing channel of global competition.
    Keywords: Mark-ups;International Trade;Productivity
    JEL: F14 D24
    Date: 2014–09
  2. By: Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University); Tetsuya Shinkai (School of Economics, Kwansei Gakuin University)
    Abstract: In a real oligopoly, firms often supply multiple products differentiated by quality in the same market. To examine why they do so, we consider a duopoly model in which firms can choose between supplying two vertically differentiated products and selling a single product in the same market. By deriving equilibriums for possible games and comparing their outcomes with each other, we explored the conditions in which firms strategically determine their product lines, choosing to sell between a single product and two products. The first three are the cases in which both firms supply both products, or they supply either homogeneous product of the two in the same market. The last two are those in which one firm supplies both but another firm does either of the two. We find that a firm producing only one product has an incentive to launch another product as long as it can do so.
    Keywords: Multi-product firm; Duopoly; Strategic choice of product line; Vertical product differentiation, Cannibalization, Launch of product
    JEL: D21 D43 L13 L15
    Date: 2014–08
  3. By: Martha Prevezer; Lutao Ning; Yuandi Wang
    Abstract: Research Question: How does Chinese corporate governance in publicly-listed firms affect the relationship between innovation productivity and top management turnover? Is state shareholding in China a positive force for innovation productivity? Research Insights: A balance is maintained between the negative effect of (relatively high) top management turnover on investment horizons and innovation productivity, mitigated by positive effects of high state ownership, up to a certain level of ownership concentration. Beyond this level, potential for abuse by the dominant shareholder curtails positive effects on innovation. This contrasts with foreign dominant shareholders where no alignment between dominant shareholder and top management occurs and shorter investment horizons are preferred with lower innovation productivity. Theoretical Implications: In China, with state-held and controlled publicly listed firms, there is an alliance between the dominant shareholder and top management with relatively low employee protection and weak protection for lesser shareholders . This may have positive outcomes for long term innovation but may also lead to principal-principal abuses. Any such alliance needs to be tempered by stronger internal governance structures to protect minority shareholders. But stronger protection may in turn reduce investment horizons and lower innovation. Policy Implications: As well as strengthening external corporate governance mechanisms, insider corporate governance mechanisms need to be strengthened to discipline managers. However stronger countervailing powers to secondary shareholders, stronger Supervisory Board rights and greater independence of Directors may tend to decrease time horizons of investment for the firm and impede innovation.
    Keywords: Corporate governance, Top management turnover, innovation performance, China
    JEL: P3 L2 P5
    Date: 2014–09
  4. By: Sandra Poncet; Florian Mayneris; Tao Zhang
    Abstract: We study how the 2004 reform of minimum wage rules in China has affected the survival, average wage, employment and productivity of local firms. To identify the causal effect of minimum wage growth, we use firm-level data for more than 160,000 manufacturing firms active in 2003 and complement the triple difference estimates with an IV strategy that builds on the institutional features of the 2004 reform. We find that the increase in city-level minimum wages resulted in lower survival probability for firms that were the most exposed to the reform. For surviving firms, wage costs increased without negative repercussions on employment. The main explanation for this finding is that productivity significantly improved, allowing firms to absorb the cost shock without hurting their employment nor their profitability. At the city-level, our results show that higher minimum wages fostered aggregate productivity growth thanks to productivity improvements of incumbent firms and net entry of more productive ones. Hence, in a fast-growing economy like China, there is a cleansing effect of labor market standards. Minimum wage growth allows more productive firms to replace the least productive ones and forces incumbent firms to strengthen their competitiveness, these two mechanisms boosting the aggregate efficiency of the economy.
    Keywords: minimum wages;firm-level performance;aggregate TFP;China
    JEL: F10 F14 O14
    Date: 2014–09
  5. By: L. Lambertini; A. Palestini; A. Tampieri
    Abstract: We investigate a linear state dfferential game describing an asymmetric Cournot duopoly with capacity accumulation à la Ramsey and a negative environmental externality (pollution), in which one of the firms has adopted corporate social responsibility (CSR) in its statute, and therefore includes consumer surplus and the environmental effects of production in its objective function. If the market is sufficiently large, the CSR firm sells more, accumulates more capital and earns higher profits than its profit-seeking rival.
    JEL: C73 H23 L13 O31
    Date: 2014–08
  6. By: Loren BRANDT; Johannes VAN BIESEBROECK; Yifan ZHANG
    Abstract: Over the reform period, industry has been the source of forty percent of GDP, and has contributed 90% of China’s exports. Annual firm level surveys that begin in 1992, along with industry-wide census in 1995, 2004 and 2008 are rich sources of data on firms’ actions in this important sector. It is well-known that working with Chinese data requires overcoming challenging measurement issues. Macroeconomic series are often suspected to suffer from political interference or reporting biases that stem from political incentives. Working with the firm-level data has its own challenges. Making sure that comparisons over time are consistent is perhaps the most difficult and pervasive issue. This is because of sampling as well as measurement issues for key variables, such as ownership type, real output, value-added, wages, and the capital stock. These problems are apparent, for example, in discrepancies between the evolution of aggregates from the firm-level data and aggregate statistics in the national income accounts. In this paper, we provide an introduction to these data sets. We discuss and illustrate several of the issues that make comparability over time difficult and we suggest solutions for many of them. The importance of a particular measurement issue often depends on the exact application. We illustrate this point by tracing the evolution of the relative productivity level of entrants and incumbents over time, trying to distinguish between changes in actual performance and changes driven by measurement problems. We conclude by identifying a few promising areas of future research and margins on which collaboration among users to improve these data might be beneficial.
    Date: 2014–06
  7. By: Oleg Itskhoki; Elhanan Helpman
  8. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Anca-Ioana Sirbu (Western Washington University); Mark Weder (University of Adelaide, Australia)
    Abstract: We examine the plausibility of expectations-driven cyclical fluctuations in an otherwise standard one-sector real business cycle model with variable capital utilization and mild increasing returns-to-scale in production. Due to a dominating wealth effect, our model is able to generate qualitatively as well as quantitatively realistic aggregate fluctuations driven by news impulses to future consumption demand or government spending on goods and services. When the economy is subject to anticipated total factor productivity or investment-specific technology shocks, the relative strength of the intertemporal substitution effect needs to be enhanced for our model to exhibit positive macroeconomic co-movement and business cycle statistics that are consistent with the data.
    Keywords: News Shocks; Aggregate Demand; Business Cycles.
    JEL: E32
    Date: 2014–09
  9. By: Jos Jansen (Department of Economics and Business, Aarhus University, Denmark); Andreas Pollak (University of Cologne)
    Abstract: We study the strategic disclosure of demand information and product-market strategies of duopolists. In a setting where firms may fail to receive information, we show that firms selectively disclose information in equilibrium in order to influence their competitor’s product-market strategy. Subsequently, we analyze the firms’ behavior in a laboratory experiment. We find that subjects often use selective disclosure strategies, and this finding appears to be robust to changes in the information structure, the mode of competition, and the degree of product differentiation. Moreover, subjects in our experiment display product-market conduct that is largely consistent with theoretical predictions.
    Keywords: duopoly, Cournot competition, Bertrand competition, information disclosure, incomplete information, common value, product differentiation, asymmetry, skewed distribution, laboratory experiment
    JEL: C92 D22 D82 D83 L13 M4
    Date: 2014–09–01
  10. By: Almut Balleer; Britta Gehrke; Christian Merkl
    Abstract: This paper reveals that German firms with working time accounts (WTAs) show a similar separation and hiring behavior in response to revenue changes as firms without WTAs. This finding casts doubt on the popular hypothesis that WTAs were the key driver of the unusually small increase in German unemployment in the Great Recession. One possible explanation is that firms substitute WTAs by short-time work. However, our results show no evidence for this substitution. Firms with WTAs use short-time work more to adjust labor over the cycle than firms without WTAs
    Keywords: Working time accounts, short-time work, business cycle
    JEL: E20 E24 J20 J30
    Date: 2014–08
  11. By: Mark Egan (University of Chicago); Casey Mulligan (University of Chicago); Tomas Philipson (University of Chicago Harris School)
    Abstract: Many national accounts of economic output and prosperity, such as gross domestic product (GDP) or net domestic product (NDP), offer an incomplete picture by ignoring, for example, the value of leisure, home production, and the value of health. Discussed shortcomings have focused on how unobserved dimensions affect GDP levels but not their cyclicality, which affects the measurement of the business cycle. This paper proposes new measures of the business cycle that incorporate monetized changes in health of the population. In particular, we incorporate in GDP the dollar value of mortality, treating it as depreciation in human capital analogous to how NDP measures treat depreciation of physical capital. We examine the macroeconomic fluctuations in the United States and globally during the past 50 years, taking into account how depreciation in health affects the cycle. Because mortality tends to be pro-cyclical, fluctuations in standard GDP measures are offset by monetized changes in health; booms are not as valuable as traditionally measured because of increased mortality, and recessions are not as bad because of reduced mortality. Consequently, we find that U.S. business cycle fluctuations appear milder than commonly measured and may even be reversed for the majority of “recessions†after accounting for the cyclicality of health. We find that adjusting for mortality reduces the measured U.S. business cycle volatility during the past 50 years by about 37% in the United States and 46% internationally. We discuss future research directions for more fully incorporating the cyclicality of unobserved health capital into standard output measurement.
    Keywords: national accounts, health economics, macroeconomics
    JEL: E01 I10
    Date: 2013
  12. By: Saiki Tsuchiya (Bank of Japan); Shinichi Nishioka (Bank of Japan)
    Abstract: This paper quantitatively analyzes how firms' default rates are affected by intangible assets, which play a crucial role in business management but are difficult to assess objectively. We use intangible assets such as firms' technological capability and the qualifications of senior management, for which numerical data from each firm are available. The results are as follows: (1) intangible assets have statistical explanatory power for firms' default rates in addition to financial data; (2) a model that incorporates intangible assets has greater accuracy in estimating default rates than one that incorporates only financial data, and the difference in the accuracy is statistically significant; and (3) the impact of changes in intangible assets on firms' default rates is comparable with that of changes in financial data. Based on our analysis, it may be effective to take into consideration intangible assets to enhance the accuracy in estimating firms' default rates. Therefore, in assessing firms' credit risk, it is important to enhance the information on intangible assets to objectively assess these assets.
    Keywords: Estimated default rates; Intangible assets; Logit model; Bootstrap method
    Date: 2014–02–07
  13. By: Fairlie, Robert
    Abstract: In contrast to the large and rapidly growing literature on IT investments and firm productivity, we know very little about the role of personal computers in business creation.  Using matched data from the 1997-2001 Computer and Internet Usage Supplements to subsequent Outgoing Rotation Group files from the Current Population Survey, I explore the relationship between computer ownership and entrepreneurship.  Trends over the past two decades provide some evidence of a positive relationship between home computers and entrepreneurship rates, but the evidence is not clear.  In contrast, an analysis of the relationship between computer ownership and entrepreneurship at the individual level provides evidence that individuals who had access to a home computer are substantially more likely to become an entrepreneur over the following 12-15 months.  Probit and bivariate probit regressions also provide evidence of a strong positive relationship between computer ownership and entrepreneurship among women, but only limited evidence for men.  Further, estimates from the CPS indicate that entrepreneurs who had prior access to home computers create a large variety of types of businesses and not only those in the IT industry.
    Keywords: Business, Social and Behavioral Sciences, entrepreneurship, ICT, computers, technology, business creation, self-employment
    Date: 2014–09–12

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