nep-bec New Economics Papers
on Business Economics
Issue of 2014‒11‒01
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. Productivity Evolution of Chinese Large and Small Firms in the Era of Globalisation By Yifan ZHANG
  2. Supplier Fixed costs and Retail Market Monopolization By Caprice, Stéphane; von Schlippenbach, Vanessa; Wey, Christian
  4. Offshoring and the Shortening of the Quality Ladder: Evidence from Danish Apparel By Valeria SMEETS; Sharon TRAIBERMAN; Frederic WARZYNSKI
  5. Why do firms switch banks? Evidence from China By Yin, Wei; Matthews, Kent
  6. The Complexity of CEO Compensation By Jarque, Arantxa
  7. Natural Disaster and Natural Selection By Uchida, Hirofumi; Miyakawa, Daisuke; Hosono, Kaoru; Ono, Arito; Uchino, Taisuke; Uesugi, Iichiro
  8. Credit Constraints, Technology Choice and Exports - A Firm Level Study for Latin American Countries By Hasan, Syed; Sheldon, Ian
  9. Liberalizing the Gas Industry: Take-or-Pay Contracts, Retail Competition and Wholesale Trade By Michele Polo; Carlo Scarpa

  1. By: Yifan ZHANG (Lingan University, Hong Kong)
    Abstract: Using a large firm-level dataset from the Chinese manufacturing industry, this paper studies the productivity gap and productivity convergence between large and small firms in China. We find that small firms are less productive relative to large firms, but the productivity gap became smaller over the sample period 1999–2007. Based on static and dynamic Blinder-Oaxaca decompositions, we distinguish the endowment effect from the return effect, and quantify the impacts of exports and FDI on the productivity gap and productivity convergence.
    Keywords: China, Small firms, Productivity, Globalisation
    JEL: F11 L22 O53
    Date: 2014
  2. By: Caprice, Stéphane; von Schlippenbach, Vanessa; Wey, Christian
    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: 2014–07
  3. By: Nikolas J. Zolas
    Abstract: This paper analyzes how firms decide where to patent in a heterogeneous firm model of trade with endogenous rival entry. In the model, innovating firms compete with rival firms on price, where rivals force the innovating firm to reduce markups and lower the innovating firm's probability of obtaining monopolistic profits. Patenting allows the innovating firm to reduce the number of rival rms by increasing their fixed overhead costs, thereby providing higher expected profits and increased markups from reduced competition. Countries with higher states of technology, more competition and better patent protection have a greater proportion of entrants who patent. Industries tend to follow a U-shaped pattern of patenting where industries with high heterogeneity in production and low substitution, along with industries with low heterogeneity in production and high substitution patent more frequently. Using a generalized framework of the model, I estimate market-based measures of country-level patent protection, which when compared with other IP indices, suggests that not enough international patenting is taking place. Finally, I test the predictions of the model using a newly available technology-to-industry concordance on bilateral patent flows and show that firms are increasingly sensitive to foreign IP protection. Countries that choose to maximize their IP protection can increase the number of foreign patents by almost 10%.
    Keywords: Patents, international trade, heterogeneous rms, endogenous markups, intellectual property, imperfect competition
    JEL: F12 F29 O34 L11
    Date: 2014–09
  4. By: Valeria SMEETS (Aarhus University); Sharon TRAIBERMAN (Princeton University); Frederic WARZYNSKI (Aarhus University)
    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.
    Date: 2014–12
  5. By: Yin, Wei (Cardiff Business School); Matthews, Kent (Cardiff Business School)
    Abstract: This paper uses a sample of matched data of firms-banks in China over the period 1999-2012 to determine the drivers of firms switching behaviour from one bank relationship to another. The findings conform to the extant literature and therefore indicate that the switching behaviour of Chinese firms is no different to firms elsewhere. The results show that the principal driver of a switching action is the credit needs of the firm and a mixture of firm and bank characteristics. The findings support the extant literature that less opaque firms are able to switch more readily than opaque firms. The results also suggest that banks that develop there fee income services are more effective in locking-in their borrowers.
    Keywords: Switching behaviour; Chinese firms; Chinese banks
    JEL: G21 L22
    Date: 2014–09
  6. By: Jarque, Arantxa (Federal Reserve Bank of Richmond)
    Abstract: I study firm characteristics that justify the use of options or refresher grants in the optimal compensation packages for CEOs in the presence of moral hazard. I model explicitly the determination of stock prices as a function of the output realizations of the firm: Symmetric learning by all parties about the exogenous quality of the firm makes stock prices sensitive to output observations. Compensation packages are designed to transform this sensitivity of prices-to-output into the sensitivity of consumption-to-output that is dictated by the optimal contract. Heterogeneity in the structure of firm uncertainty implies that some firms are able to implement the optimal contract with very simple schemes that do not include options, refresher grants, or perks, while others need to use these more complex and potentially less transparent instruments.
    JEL: D80 D82 D86 G30
    Date: 2014–10–02
  7. By: Uchida, Hirofumi; Miyakawa, Daisuke; Hosono, Kaoru; Ono, Arito; Uchino, Taisuke; Uesugi, Iichiro
    Abstract: In this paper, we investigate whether a 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 Great Tohoku Earthquake, we examine the impact of firm efficiency on firm bankruptcy both inside and outside the earthquake-affected areas. We find that more efficient firms are less likely to go bankrupt both inside and outside the affected areas, which indicates the existence of the 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 apply the same methodology to the case of the Great Hanshin-Awaji Earthquake, and find qualitatively similar results.
    Keywords: firm exit, bankruptcy, natural selection, earthquake, natural disaster
    JEL: L10
    Date: 2014–09
  8. By: Hasan, Syed; Sheldon, Ian
    Keywords: International Relations/Trade, Research and Development/Tech Change/Emerging Technologies,
    Date: 2013–12
  9. By: Michele Polo; Carlo Scarpa
    Abstract: This paper examines retail competition in a liberalized gas market. Vertically integrated firms run both wholesale activities (buying gas from the producers under take-or-pay obligations) and retail activities (selling gas to final customers). The market is decentralized and the firms decide which customers to serve, competing then in prices. We show that TOP clauses limit the incentives to face-to-face competition and determine segmentation and monopoly pricing even when entry of new competitors occurs. The development of wholesale trade, instead, may induce generalized entry and retail competition. This equilibrium outcome is obtained if a compulsory wholesale market is introduced, even when firms are vertically integrated, or under vertical separation of wholesale and retail activites when firms can use only linear bilateral contracts.
    Keywords: Entry, Segmentation, capacity constraints, wholesale markets.
    JEL: L11 L13 L95
  10. By: Ron Jarmin; C.J. Krizan; Adela Luque
    Abstract: Minority owned businesses are an increasing important component of the U.S. economy, growing at twice the rate of all U.S. businesses between 2002 and 2007. However, a growing literature indicates that minority-owned businesses may have been especially impacted by the Great Recession. As house prices declined, foreclosures fell disproportionately on urban minority neighborhoods and one of the sources of credit for business owners was severely constrained. Using 2002-2011 data from the Longitudinal Business Database linked to the 2002 Survey of Business Owners, this paper adds to the literature by examining the employment growth and survival of minority and women employer businesses during the last decade, including the Great Recession. At first glance, our preliminary findings suggest that black and women-owned businesses underperform white, male-owned businesses, that Asian-owned businesses outperform other groups, and that Hispanic-owned businesses outperform non-Hispanic ones in regards to employment growth. However, when we look only at continuing firms, black-owned businesses outperform white-owned businesses in terms of employment growth. At the same time, we also find that the recession appears to have impacted black-owned and Hispanic-owned businesses more severely than their counterparts, in terms of employment growth as well as survival. This is also the case for continuing black and Hispanic-owned firms.
    Date: 2014–09

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