nep-bec New Economics Papers
on Business Economics
Issue of 2014‒11‒07
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. The cleansing effect of minimum wages - Minimum wages, firm dynamics and aggregate productivity in China By Sandra PONCET; Florian MAYNERIS; Tao ZHANG
  2. Voluntary Disclosure, Greenhouse Gas Emissions and Business Performance: Assessing the First Decade of Reporting By David C Broadstock; Alan Collins; Lester C Hunt; Konstantinos Vergos
  3. Flexible pay systems and labour productivity: Evidence from Emilia-Romagna manufacturing firms By Davide Antonioli; Paolo Pini; Roberto Antonietti
  4. Trust and earn more? The Impact of Trust on Corporate Performance By Sandra Rothenberger; Koen Tackx
  5. Directing Technical Change from Fossil-Fuel to Renewable Energy Innovation: An Application using Firm Level Patent Data By Joelle Noailly; Roger Smeets
  6. Birthplace diversity and productivity spill-overs in firms By René Böheim; Thomas Horvath; Karin Mayr
  7. Shareholder Voting and Merger Returns By Henning, Laura Sophie; Oesch, David
  8. A note on the granular nature of imports in German manufacturing industries By Joachim Wagner
  9. Financial Reliability and Firms' Export Activity By Emanuele Forlani
  10. Effect of Alliance Experience on New Alliance Formations and Internal R&D Capabilities By Gunno Park; Jina Kang
  11. Do we see monopoly or duopoly? The influence of perception on entry deterrence By Edward John Dorrell Webb
  12. Hotelling meets Holmes : the importance of returns to product differentiation and distribution economies for the firm's optimal location choice By Anett Erdmann

  1. By: Sandra PONCET (Université de Paris I); Florian MAYNERIS (FERDI); Tao ZHANG (FERDI)
    Abstract: We here consider how Chinese firms adjust to higher minimum wages and how these affect aggregate productivity, exploiting the 2004 minimum-wage reform in China. We find that higher city-level minimum wages reduced the survival probability of firms which were the most exposed to the reform. For the surviving firms, thanks to signicant productivity gains, wage costs rose without any negative employment effect. At the city-level, our results show that higher minimum wages affected aggregate productivity growth via both productivity growth in incumbent firms and the net entry of more productive firms. Hence, in a fast-growing economy like China, there is a cleansing effect of labor-market standards.
    JEL: F10 F14 O14
    Date: 2014–10
  2. By: David C Broadstock (TIERS, Southwestern University of Finance and Economics, China and Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey, UK.); Alan Collins (Portsmouth Business School, University of Portsmouth, Portsmouth, UK and Department of Economics and Economic History, Rhodes University, Grahamstown, Eastern Province, South Africa.); Lester C Hunt (Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.); Konstantinos Vergos (Department of Economics, University of Alberta, Edmonton, Canada.)
    Abstract: This study explores patterns in the voluntary disclosure of greenhouse gas (GHG) emissions and empirical relationships between GHG emissions and an extensive range of business performance measures for UK FTSE-350 listed firms over the first decade of such reporting and highlighting the level of consistency among these measures. Despite the popular and policy generated environmental imperatives over this period, an extensive pattern of non-reporting of such emissions is apparent by year and sector. Accordingly, a two-stage (Heckman type) selection model is used to analyse the emissions-performance nexus conditional upon the firm choosing to report, using bootstrap inference to further ensure robustness of the results. The results demonstrate firstly that emissions reporting are not directly influenced by the social/governance disclosure attitudes of a firm, thus suggesting that firms disassociate environmental responsibility from social responsibility. Additionally it is demonstrated that for those firms that do report, there is a clear non-linear relationship, initially increasing with firm performance and then elasticities.
    Keywords: voluntary disclosure, carbon emissions, business performance, environmental reporting.
    Date: 2014–10
  3. By: Davide Antonioli; Paolo Pini; Roberto Antonietti
    Abstract: The aim of this paper is to analyse the link between flexible pay systems (FPS) and labour productivity, with a close look at wage premium determinants as elements disclosing specific managerial strategies. The analysis was conducted on a sample of more than 500 manufacturing firms located in the Emilia-Romagna region, Italy. Results show that the adoption of flexible pay schemes is linked to union involvement and organizational changes within the firm, supporting the idea that flexible wages do not constitute merely an economic premium, but a more complex strategy aimed at increasing employees’ flexibility and autonomy. Notwithstanding the positive effects on productivity, the relation with economic performance does not emerge as extremely innovative. On the one hand, it is driven by a traditional form of premiums (PRP) targeted to individual employees and linked to a simple “effort improvement and control†motivation and “ability to pay†of the firm. On the other, it is driven by premiums (PFP) provided ex-ante and aimed at developing employees’ participation and competencies
    Keywords: performance related pay; pay for participation; organizational innovation; industrial relations; labour productivity
    JEL: J24 J33 J51
    Date: 2014–10–08
  4. By: Sandra Rothenberger; Koen Tackx
    Abstract: In this article we investigate the impact of personal and organizational trust on the financial performance of companies over a period of time. The effect of trust on various economic and managerial transactions is being researched extensively over the last two decades but previous research did not led to empirical proof that the overall trust level of a company actually increases the financial profitability of firms over a longer period of time. Drawing on a sample of 291 German industrial firms over a period of six years we observe that both personal and organizational trust have a positive influence on the return on assets of a firm. Furthermore we proof that trust is driving profitability in certain conditions and environments differently. By analysing the relationship and characteristics between trust and profitability, this study brings a concrete illustration of what was implicitly known by many scholars and has important implications for future research and management practice.
    Keywords: Trust; Knowledge Intensity; Performance; Return on Assets (ROA); Structural Equation Modeling (SEM); Environmental Uncertainty
    JEL: D02 D80 M20
    Date: 2014–10–15
  5. By: Joelle Noailly; Roger Smeets (The Centre for International Environmental Studies, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper investigates the determinants of directed technical change at the Firm level in the electricity generation sector. We use firm-level data on patents filed in renewable (REN) and fossil fuel (FF) technologies by 5,261 european firms over the period 1978-2006. We investigate how energy prices, market size and knowledge stocks affect firms' incentives to innovate in one technology relative to another and how these factors may thereby induce a shift from FF to REN technology in the electricity generation sector. We separately study small specialized firms, which innovate in only one type of technology during our sample period, and large mixed firms, which innovate in both technologies. We also separate the extensive margin innovation decision (i.e. whether to conduct innovation) from the intensive margin decision (i.e. how much to innovate). Overall, we find that all three factors - energy prices, market sizes and past knowledge stocks - matter to redirect innovation towards REN and away from FF technologies. Yet, we find that these factors have a larger impact on closing the technology gap through the entry (and exit) of small specialized firms, rather than through large mixed firms' innovation. An implication of our results is that firm dynamics are of direct policy interest to induce the replacement of FF by REN technologies in the electricity generation sector.
    Keywords: Directed technical change; Renewable energy; Fossil fuel energy; Patents; Innovation; Firm dynamics
    Date: 2014–02–01
  6. By: René Böheim; Thomas Horvath; Karin Mayr
    Abstract: We determine workforce composition and wages in firms in the presence of productivity spill-overs between co-workers. In equilibrium, workers' wages depend on the production struc- ture of firms, own group size, and aggregate workforce composition in the firm. We estimate the wage effects of workforce diversity and own group size by birthplace and the implied pro- duction structure in Austrian firms using a comprehensive matched employer-employee data set. In our data, we identify a positive effect of workforce diversity and a negative effect of own group size on wages, which suggest that workers of different birthplaces are complements in production on average.
    Keywords: workforce composition, productivity spill-overs, worker group size
    JEL: D21 D22 F22 J31
    Date: 2014–08
  7. By: Henning, Laura Sophie; Oesch, David
    Abstract: Using a sample of 384 shareholder meetings, we investigate whether shareholder votes on mergers and acquisitions in both target and acquirer firms relate to the announcement day abnormal returns and whether the voting outcome has implications for the short- and long-run merger performance. We find that shareholder voting dissent is negatively related to both abnormal returns upon merger announcement and recommendations by Institutional Shareholder Services (ISS). The former relationship is stronger for target firms and only borderline significant for acquirer firms. Overall, shareholders seem to take both advisor opinions and market beliefs into account when taking their voting decision. We also find that cumulative abnormal returns on the meeting date are strongly positively related to voting dissent. The observed relationship holds only for mergers with a long negotiation period suggesting that in these mergers a higher fraction of residual uncertainty is re-solved upon a “pass” vote. Furthermore, we find that voting dissent is negatively related to long-run abnormal merger performance suggesting a predictive power of merger votes.
    Keywords: Shareholder voting; Mergers and acquisitions; Proxy advisors; Merger perfor-mance
    JEL: G14 G34
  8. By: Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: This paper uses an approach recently suggested by Gabaix (Eonometrica 2011) to investigate for the first time the role of idiosyncratic shocks to the largest firms in the dynamics of imports by firms from manufacturing industries. For Germany we find evidence that imports are power-law distributed and that the distribution of imports in the industries can be characterised as fat-tailed. Results show that idiosyncratic shocks to very large firms are important for the import dynamics in 2010/2011 but not in 2009/2010.
    Keywords: EImports, power law, granular residual, Germany
    JEL: F14 E32 L60
    Date: 2014–10
  9. By: Emanuele Forlani (Department of Economics and Management, University of Pavia)
    Abstract: This paper assesses the importance of firms' financial resources that are necessary to overcome sunk entry costs associated with export. We propose a new methodology to identify \textit{a priori} constrained firms, exploiting a rich data-set on Italian firms' assets and liabilities. We provide evidence that the entry probability is affected by the level of cash stock for the constrained firms: an increase of 10\% in the cash stock of constrained firms raises by an additional 0.17\% the entry probability of rationed firms, compared to unconstrained ones. Additionally, we find evidence that the liquidity is mainly used for investments in the development of new products for foreign markets. We do not find evidence that entry in the export market improves the firm's financial health, while \textit{ex-ante} new entrants are relatively more leveraged.
    Keywords: Credit constraints, Financial reliability, export
    JEL: F10 F12 F13 L25 M20
    Date: 2014–10
  10. By: Gunno Park (Samsung SDS); Jina Kang (Technology Management, Economics, and Policy Program, College of Engineering, Seoul National University)
    Abstract: Although their advantages are well-known, technology alliance may not always positively affect innovative performance. Previous studies have found several explanations for this problem. Technology alliances often require excessive resources and capabilities to form and maintain relationships with partners. In addition, they cause a diversion of managerial attention and functions from internal R&D activities, yet many firms are often unequipped to deal with these problems. In this paper, we hypothesize that firms often execute an inefficient technology alliance strategy, thus negatively affecting their innovative capabilities and consequently reducing subsequent innovation performance. More specifically, we test whether firms with greater prior experience on technology alliances are more likely to execute inefficient technology alliance strategies. Second, we try to investigate negative effects of technology alliances on firms’ internal R&D capabilities. To test our hypotheses, we employ data from 9629 technology alliances in the US biotechnology and pharmaceutical industries. Implications from these analyses are offered for executives and technology alliance strategies. Specifically, we propose that firms should undertake technology alliances while considering the negative aspects and the firm’s limited resources.
    Keywords: Alliance Experience, Organizational Routine, Alliance Formation, Internal R&D Capability.
    JEL: D23 L22 L24 O32
    Date: 2014–09
  11. By: Edward John Dorrell Webb (Department of Economics, Copenhagen University)
    Abstract: Consumers have bounded perception and treat similar goods as homogeneous. The interaction between this bias and the structure of firms is studied in a vertically differentiated duopoly with market entry. With fixed costs of quality, natural monopoly and entry deterrence occurs at lower entry costs and incumbent profit is higher. With marginal costs of quality, natural monopoly occurs at higher entry costs or not at all. Deterrence occurs at higher entry costs for mild perceptual limitations and at lower costs for severe limitations. Incumbent profit is generally lower, although for a narrow range of parameter values it may be higher. The incumbent may opt not to enter and no market is created.
    Keywords: perception, similarity, bounded rationality, vertical differentiation, entry deterrence, oligopoly
    JEL: D03 D42 D43
    Date: 2014–10–08
  12. By: Anett Erdmann
    Abstract: Inspired by the empirical work of Holmes (2011), which suggests the economic importance of distribution costs in the firm's optimal location decision, this paper introduces endogenous distribution costs in the model of Hotelling (1929). The proposed model shows an interesting trade-off between demand and cost considerations when a firm plays a hybrid location strategy. Given the location of local distribution centers and agents' displacement cost parameters, it is shown that, under certain conditions, the optimal location of the firms are in the interior of the Hotelling line rather than at the edges of the line. The supply cost effect which drives this result diminishes with the distance of the distribution center from the market so that the scale of the distribution area becomes also determinant for an optimal location strategy. The theoretical results are complemented with an empirical analysis for distribution intensive grocery retailers using location data for the two main conventional supermarket chains in the U.S. The data suggest that the firms consider distribution costs when differentiating from the competitor.
    Keywords: Firm strategy , product differentiation , distribution costs , price competition , location choice , retail competition
    JEL: L13 L22 L81 D43 R10 R30
    Date: 2014–10

This nep-bec issue is ©2014 by Vasileios Bougioukos. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.