nep-bec New Economics Papers
on Business Economics
Issue of 2014‒11‒28
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. Import Competition, Domestic Regulation and Firm-Level Productivity Growth in the OECD By Sarah Ben Yahmed; Sean Dougherty
  2. Independent directors: less informed, but better selected? New evidence from a two-way director-firm fixed effect model By Sandra Cavaco; Patricia Crifo; Antoine Rebérioux; Gwenaël Roudaut
  3. CEO fitness and firm value By Limbach, Peter; Sonnenburg, Florian
  4. "Acquisitions, Productivity, and Profitability: Evidence from the Japanese Cotton Spinning Industry" By Serguey Braguinsky; Atsushi Ohyama; Tetsuji Okazaki; Chad Syverson
  5. Buyer-Supplier Networks and Aggregate Volatility By Takayuki Mizuno; Wataru Souma; Tsutomu Watanabe
  6. Environmental Dynamic, Business Strategy, and Financial Performance: An Empirical Study of Indonesian Property and Real Estate Industry By Wahyudi, Imam
  7. Estimating Direct and Indirect Effects of Foreign Direct Investment on Firm Productivity in the Presence of Interactions between Firms By Girma, Sourafel; Gong, Yundan; Görg, Holger; Lancheros, Sandra
  8. Does a Firm's Exposure to Ethical Issues Matter to Financial Markets? A Governance Perspective By Denis Cormier; Michel Magnan
  9. Financial Frictions and Macroeconomic Fluctuations in Emerging Economies By Akinci, Ozge
  10. Bubbles, Crashes and Endogenous Uncertainty in Linked Asset and Product Markets By Erik O. Kimbrough; Taylor Jaworski
  11. Financing Constraints and Unemployment: Evidence from the Great Recession By Duygan-Bump, Burcu; Leykov, Alexey; Montoriol-Garriga, Judit

  1. By: Sarah Ben Yahmed (IEP Aix-en-Provence - Sciences Po Aix - Institut d'études politiques d'Aix-en-Provence - Institut d'Études Politiques [IEP] - Aix-en-Provence - Aix Marseille Université - Fondation Nationale des Sciences Politiques [FNSP], GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - École des Hautes Études en Sciences Sociales (EHESS) - CNRS : UMR7316); Sean Dougherty (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, OCDE - Organisation de coopération et de développement économiques - OCDE)
    Abstract: This paper examines how import penetration affects firms' productivity growth taking into account the heterogeneity in firms' distance to the efficiency frontier and country differences in product market regulation.
    Keywords: Firm productivity growth ; Behind-the-border regulatory barriers ; Product market regulation ; Import competition, international trade
    Date: 2014–03–14
  2. By: Sandra Cavaco; Patricia Crifo; Antoine Rebérioux; Gwenaël Roudaut
    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 mechanisms related 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 a strong informational gap that outweighs other monitoring benefits. However, we show that industry-specific expertise as well as informal connections inside the boardroom may help to bridge this gap. Second, 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.
    JEL: G30 G34
    Date: 2014
  3. By: Limbach, Peter; Sonnenburg, Florian
    Abstract: This study finds a positive relation between CEO fitness and firm value. For each of the years 2001 to 2011, we define CEOs of S&P 1500 companies as being fit if they finish a marathon. The literature suggests that fitness moderates stress and positively affects cognitive functions and performance. Accordingly, we find the strongest effects on firm value in subsamples where fitness is most important, i.e., for CEOs with high workload, above median age, and above median tenure. Fit CEOs are further associated with significantly higher abnormal announcement returns in M&A bids for large, public, and cross-border targets, concomitant with high stress. Our findings can explain the importance of CEO fitness in the managerial labor market and the trend among CEOs to stay fit.
    Keywords: CEO characteristics,CEO fitness,CEO work load,firm value,mergers and acquisitions
    JEL: G32 G34 J24
    Date: 2014
  4. By: Serguey Braguinsky (Department of Social and Decision Sciences, Carnegie Mellon University); Atsushi Ohyama (Graduate School of Economics and Business, Hokkaido University); Tetsuji Okazaki (Faculty of Economics, The University of Tokyo); Chad Syverson (University of Chicago Booth School of Business and NBER)
    Abstract: We explore how changes in ownership and managerial control affect the productivity and profitability of producers. Using detailed operational, financial, management, and ownership data from the Japanese cotton spinning industry at the turn of the last century, we find a more nuanced picture than the straightforward "higher productivity buys lower productivity" story commonly appealed to in the literature. Acquired firms' production facilities were <i>not</i> on average any less physically productive than the plants of the acquiring firms before acquisition, conditional on operating. They were much less <i>profitable</i>, however, due to consistently higher inventory levels and lower capacity utilization—differences which reflected problems in managing the inherent uncertainties of demand in the industry. When these less profitable plants were purchased by more profitable establishments, the acquired plants saw drops in inventories and gains in capacity utilization that raised both their productivity and profitability levels, consistent with acquiring owner/managers spreading their better demand management abilities across the acquired capital.
    Date: 2014–10
  5. By: Takayuki Mizuno (National Institute of Informatics, Department of Informatics, The Graduate University for Advanced Studies, PRESTO, Japan Science and Technology Agency, Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies); Wataru Souma (College of Science and Technology, Nihon University); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies)
    Abstract: In this paper, we investigate the structure and evolution of customer-supplier networks in Japan using a unique dataset that contains information on customer and supplier linkages for more than 500,000 incorporated non-financial firms for the five years from 2008 to 2012. We find, first, that the number of customer links is unequal across firms; the customer link distribution has a power-law tail with an exponent of unity (i.e., it follows Zipf's law). We interpret this as implying that competition among firms to acquire new customers yields winners with a large number of customers, as well as losers with fewer customers. We also show that the shortest path length for any pair of firms is, on average, 4.3 links. Second, we find that link switching is relatively rare. Our estimates indicate that the survival rate per year for customer links is 92 percent and for supplier links 93 percent. Third and finally, we find that firm growth rates tend to be more highly correlated the closer two firms are to each other in a customer-supplier network (i.e., the smaller is the shortest path length for the two firms). This suggests that a non-negligible portion of fluctuations in firm growth stems from the propagation of microeconomic shocks – shocks affecting only a particular firm – through customer-supplier chains.
    Date: 2014–11
  6. By: Wahyudi, Imam
    Abstract: Firm’s strategic orientation involves synchronizing environmental dynamics, corporate strategy and capital structure in order to achieve firm performance targets. The co-alignment model used successfully in the hospitality industry might be used in a wider context as a framework in explaining these relationships simultaneously. Using the data of public firms in Indonesia during the period of 1996-2010, we found that co-alignment model can be implemented in property and real estate industry as well as in hospitality industry.
    Keywords: macroeconomic conditions, corporate strategy, performance, property and real estate, investment
    JEL: D92 E22 G32 O33
    Date: 2012–10–11
  7. By: Girma, Sourafel (University of Nottingham); Gong, Yundan (Aston University); Görg, Holger (Kiel Institute for the World Economy); Lancheros, Sandra (University of Nottingham)
    Abstract: We implement a method to estimate the direct effects of foreign-ownership on foreign firms' productivity and the indirect effects (or spillovers) from the presence of foreign-owned firms on other foreign and domestic firms' productivity in a unifying framework, taking interactions between firms into account. To do so, we relax a fundamental assumption made in empirical studies examining a direct causal effect of foreign ownership on firm productivity, namely that of no interactions between firms. Based on our approach, we are able to combine direct and indirect effects of foreign ownership and calculate the total effect of foreign firms on local productivity. Our results show that all these effects vary with the level of foreign presence within a cluster, an important finding for the academic literature and policy debate on the benefits of attracting foreign owned firms.
    Keywords: propensity score matching, SUTVA, foreign direct investment, interactions
    JEL: F23
    Date: 2014–09
  8. By: Denis Cormier (ESG UQAM); Michel Magnan (Concordia University)
    Abstract: This paper investigates if a firm's ethical issues, in conjunction with its governance, affect its standing within financial markets. A firm's ethical reputation arises from its involvement in ethical violations and incidents while a comprehensive index proxies for governance. We assess a firm's standing within financial markets through two complementary perspectives, i.e., the level of information asymmetry between managers and investors as inferred from analyst forecast dispersion and analyst forecast error and the relation between a firm's earnings and its stock market valuation (value relevance). Our results suggest that a firm's ethical reputation affects financial analysts' forecasts as well as the stock market value assigned to its reported earnings. Moreover, it appears that corporate governance moderates such relations, with strong (weak) governance compensating for a weak (strong) ethical reputation. Overall, our evidence shows that ethical issues do not seem to pay.
    Keywords: Corporate governance, ethical issues, information asymmetry, stock markets
    Date: 2014–11
  9. By: Akinci, Ozge (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Estimated dynamic models of business cycles in emerging markets deliver counterfactual predictions for the country risk premium. In particular, the country interest rate predicted by these models is acyclical or procyclical, whereas it is countercyclical in the data. This paper proposes and estimates a small open economy model of the emerging-market business cycle in which a time-varying country risk premium emerges endogenously. In the proposed model, a firm's borrowing rate adjusts countercyclically as the default threshold of the firm depends on the state of the macroeconomy. I econometrically estimate the proposed model and find that it can account for the volatility and the countercyclicality of country risk premium as well as for other key emerging market business cycle moments. Time varying uncertainty in firm specific productivity contributes to delivering a countercyclical default rate and explains 70 percent of the variances in the trade balance and in the country risk premium. Finally, I find the predicted contribution of nonstationary productivity shocks in explaining output variations falls between the extremely high and extremely low values reported in the literature.
    Keywords: Financial frictions; country risk premium; international business cycles; Bayesian estimation
    JEL: E32 E44 F44 G15
    Date: 2014–10–24
  10. By: Erik O. Kimbrough (Simon Fraser University); Taylor Jaworski (Queen's University)
    Abstract: In laboratory asset markets, subjects trade shares of a firm whose profits in a linked product market determine dividends. Treatments vary whether dividend information is revealed once per period or in real-time and whether the firm is controlled by a profit-maximizing robot or human subject. The latter variation induces uncertainty about firm behavior, bridging the gap between laboratory and field markets. Our data replicate well-known features of laboratory asset markets (e.g. bubbles), suggesting these are robust to a market-based dividend process. Compared to a sample of previous experiments, both real-time information revelation and endogenous uncertainty impede the bubble-mitigating impact of experience.
    Keywords: Asset Markets, Uncertainty, Experimental Economics
    JEL: C91 D84
    Date: 2014–10–29
  11. By: Duygan-Bump, Burcu (Board of Governors of the Federal Reserve System (U.S.)); Leykov, Alexey (Federal Reserve Bank of Boston); Montoriol-Garriga, Judit (Universitat Autonoma de Barcelona)
    Abstract: Exploiting the differential financing needs across industrial sectors, this paper shows that financing constraints of small businesses in the United States are one of the drivers explaining the unemployment dynamics during the Great Recession. We show that workers in small firms are more likely to become unemployed during the 2007-09 financial crisis if they work in industries with high external financing needs. We find very similar results for the 1990-91 recession, but not for the 2001 recession, where only the former was associated with a reduction in loan supply. These findings further support the credit constraints hypothesis.
    Keywords: Great Recession; firm size; financial dependence; unemployment
    JEL: E24 E44 G20
    Date: 2014–10–22

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