nep-bec New Economics Papers
on Business Economics
Issue of 2015‒01‒26
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Business Strategy and the Management of Firms By Mu-Jeung Yang; Lorenz Kueng; Bryan Hong
  2. Does agglomeration matter everywhere?: new firm location decisions in rural and urban markets By Artz, Georgeanne M.; Kim, Younjun; Orazem, Peter
  3. Cyclical Reallocation of Workers Across Large and Small Employers By Henry Hyatt; Erika McEntarfer; John Haltiwanger
  4. Minimum quality standards and non-compliance By Birg, Laura; Voßwinkel, Jan S.
  5. The Firm Size Effect On Performance Due To Intangible Resources By Mariia A. Molodchik; Carlos Jardon; Angel Barajas
  6. Mobility of ideas for innovation: The role of inventor-specific knowledge flows By Koski, Heli; Pajarinen, Mika
  7. Determinants of an Environmental Horticulture Firm’s Recycle Process in terms of type and quantity: the Case of Georgia By Meng, Ting; Anna M., Klepacka; Florkowski, Wojciech; Kristine, Braman
  8. Implications of Ownership Identity and Insider's Supermacy on the Economic Performance of the Liste Companies By Yasser, Qaiser Rafique; Mamun, Abdullah Al
  9. Optimal deterrence of illegal behavior under imperfect corporate governance By Argenton, C.; van Damme, E.E.C.
  11. The Uncertainty Multiplier and Business Cycles By Hikaru Saijo
  12. SMEs, financial constraints and growth By Ryan Banerjee
  13. Identifying gazelles: expert panels vs. surveys as a means to identify firms with rapid growth potential By Fafchamps, Marcel; Woodruff, Christopher

  1. By: Mu-Jeung Yang; Lorenz Kueng; Bryan Hong
    Abstract: Business strategy can be defined as a firm's plan to generate economic profits based on lower cost, better quality, or new products. The analysis of business strategy is thus at the intersection of market competition and a firm's efforts to secure persistently superior performance via investments in better management and organization. We empirically analyze the interaction of firms' business strategies and their managerial practices using a unique, detailed dataset on business strategy, internal firm organization, performance and innovation, which is representative of the entire Canadian economy. Our empirical results show that measures of business strategy are strongly correlated with firm performance, both in the cross-section and over time, and even after controlling for unobserved profit shocks exploiting intermediates utilization. Results are particularly striking for innovation, as firms with some priority in business strategies are significantly more likely to innovate than firms without any strategic priority. Furthermore, our analysis highlights that the relationship between strategy and management is driven by two key organizational trade-offs: employee initiative vs. coordination as well as exploration of novel business opportunities vs. exploitation of existing profit sources.
    JEL: D22 D23 D24 D92 M21
    Date: 2015–01
  2. By: Artz, Georgeanne M.; Kim, Younjun; Orazem, Peter
    Abstract: We test whether commonly used measures of agglomeration economies encourage new firm entry in both urban and rural markets.  Using new firm location decisions in Iowa and North Carolina, we find that measured agglomeration economies increase the probability of new firm entry in both urban and rural areas.  Firms are more likely to locate in markets with an existing cluster of firms in the same industry, with greater concentrations of upstream suppliers or downstream customers, and with a larger proportion of college-educated workers in the local labor supply.  Firms are less likely to enter markets with no incumbent firms in the sector or where production is concentrated in relatively few sectors.  The same factors encourage both stand-alone start-ups and establishments built by multi-plant firms.  Commuting decisions exhibit the same pattern as new firm entry with workers commuting from low to high agglomeration markets.  Because agglomeration economies are important for rural firm entry also, policies encouraging new firm entry should focus on relatively few job centers rather than encouraging new firm entry in every small town.
    Keywords: firm entry; education; specialization; local monopoly; industrial diversity; upstream and downstream firms; stand-alone versus expansion start-ups
    JEL: L26 M13 R11
    Date: 2014–07–05
  3. By: Henry Hyatt (US Census Bureau); Erika McEntarfer (US Census Bureau); John Haltiwanger (University of Maryland)
    Abstract: Search-and-matching models with on-the-job search and firm size yield the prediction that job-to-job flows reallocate workers from smaller to larger firms. Recent papers have extended such models to explain the cyclicality of employment at large vs. small firms. In this paper, we use linked employer-employee data for the U.S. to provide direct evidence on worker reallocation by firm size. We find that job-to-job flows do not generally move workers from smaller to larger employers. Instead, we show that workers moving directly from one job to another more frequently move from large firms to small firms than the reverse. This is despite the fact that large businesses rely more on poaching workers from other firms when hiring and small businesses hire largely from the pool of nonemployed, results that are consistent with the theory. Regarding the cyclical nature of this reallocation, we find that poaching hires are highly procyclical for both large and small firms. Yet despite the cyclical nature of poaching, net reallocation across firm size classes via poaching is relatively stable across the business cycle. The implication is that net poaching by size class is relatively small in magnitude at all phases of the cycle. We find more supportive evidence of the predictions of recent theories regarding net poaching between small and large firms in times of tight labor markets when we focus on mature firms. Even here however the quantitative effects are small.
    Date: 2014
  4. By: Birg, Laura; Voßwinkel, Jan S.
    Abstract: This paper studies the effect of non-compliance with a minimum quality standard on prices, quality, and welfare in a vertical differentiation model. Non-compliance with a minimum quality standard by a low-quality firm reduces quality levels of both firms, increases the price for the high-quality product, decreases the price for the low-quality product, and shifts demand from the low-quality to the high-quality firm. Under non-compliance, an increase in the standard increases the quality difference, increases the price difference, and shifts demand from the high-quality to the low-quality firm. Stricter government enforcement decreases the quality level of the low-quality firm, increases the price of the high-quality product and shifts demand from the low-quality firm to the high-quality firm. Non-compliance of the low quality firm increases profits for both firms, reduces consumer surplus and increases or decreases welfare depending on the market size, the effect of quality levels of the externality, the detection probability, and the minimum quality level.
    Keywords: minimum quality standard,non-compliance,enforcement
    JEL: K42 L13 L50
    Date: 2015
  5. By: Mariia A. Molodchik (National Research University Higher School of Economics); Carlos Jardon (National Research University Higher School of Economics); Angel Barajas (National Research University Higher School of Economics)
    Abstract: The paper explores the effect of firm size on the relation between intangible resources and companies’ performance (ROA). The authors identify six types of intangibles: human resources and management capabilities, innovation and internal process capabilities and customer loyalty and networking capabilities. The study provides econometric justification using a database of more than 1400 European public companies. The time period for the investigated data covers ten years from 2004 to 2013. A dummy regression analysis was applied for empirical testing. The findings revealed that the size of a company matters with regard to the employment of intangible resources and for a performance based on intangibles
    Keywords: intangibles, performance, SME, large companies, European companies, ROA, dummy regression.
    JEL: O30 F L L60 L63
    Date: 2014
  6. By: Koski, Heli; Pajarinen, Mika
    Abstract: Our data from 351 innovating firms for the years 2001–2012 generally suggest that patentable ideas are strongly linked to the mobility of individual inventors, or that the knowledge flows transmitted are sticky inventor-specific. In other words, the larger the knowledge pool of an inventor entering (leaving) the firm, the more the firm’s innovation performance increases (decreases). However, our separate estimations for six different technology classes suggest that this does not apply for all technologies. Our data indicate that the knowledge flows are mobile inventor-specific for chemicals and pharmaceuticals and mechanical engineering such that the mobility of an inventor to a firm increases its innovation performance but the mobility of an inventor from a firm does not affect its innovation performance. We further find that particularly innovation coopetition (i.e., collaboration with a firm’s competitors) is an important source of knowledge spillovers. Furthermore, the magnitude of overall localized innovation activity positively relates to the firm’s innovation performance providing support for agglomeration externalities.
    Keywords: labor mobility, knowledge spillovers, patents, innovation
    JEL: J62 D22 D62 L2 O3
    Date: 2015–01–05
  7. By: Meng, Ting; Anna M., Klepacka; Florkowski, Wojciech; Kristine, Braman
    Abstract: Environmental horticulture firms provide a variety of commercial/residential landscape products and services encompassing ornamental plant production, design, installation, and maintenance. The companies generate tons of waste including plastic containers, trays, and greenhouse/field covers, creating the need to reduce and utilize plastic waste. Based on survey data collected in Georgia in 2013, this paper investigates determinants of the environmental horticulture firms’ recycling decision (plastic containers, flats, and greenhouse poly) as well as factors influencing total quantity of recyclable materials discarded by firms. Our findings indicate that the decision to discard vs. recycle plastic containers, flats, and greenhouse poly is significantly influenced by firm scope, size, location, and partnership with recycling providers, as well as whether recycling providers offer additional waste pickup services. In terms of total quantity of discarded waste, high revenue firms with a focus on landscape maintenance and plant nurseries are found to throw away more recyclable materials compared to firms with another business focus. Insights from this study are of use to local governments and environmental organizations interested in increasing horticultural firm participation in recycling programs and lowering the volume of plastic destined for landfills.
    Keywords: urban, plastic waste, probit model, firm charateristics, Environmental Economics and Policy, Q3, Q5,
    Date: 2015
  8. By: Yasser, Qaiser Rafique; Mamun, Abdullah Al
    Abstract: We adopt a multi-theoretic approach to investigate a previously unexplored phenomenon in extant literature, namely the differential impact of ownership identity and director dominate shareholding on the performance of emerging market firms. The main research question addressed is, whether the impact of this relationship is conditional on the identity of the block investor. First, the relationship between overall block ownership and firm performance is tested by employing multiple regressions on 500 firm-year observations for the period from 2007 to 2011. Then, the block ownership is classified as the state, individuals, insiders, financial institutions, corporate and foreign investors and the influence of these identities on firm performance is examined. It was found that only the ownership categories such as the government, institutions and foreign ownership have positive influence on the firm performance. The results also indicate that high level of insider ownership also negatively associated with the firm performance. The main contribution of this paper is the examination of the relationship between block ownership and firm performance from the perspective of the identity of investors.
    Keywords: Ownership Structure, Firm Performance, Director Domination
    JEL: G3 G34
    Date: 2014
  9. By: Argenton, C. (Tilburg University, Center For Economic Research); van Damme, E.E.C. (Tilburg University, Center For Economic Research)
    Abstract: We study the optimal design of liability schemes (at the corporate or individual level) when the objective is to deter socially harmful corporate behavior without discouraging productivity enhancements. We assume that firms face agency problems between shareholders and managers (moral hazard) and that unlimited sanctions on individuals are not available. We show that pure corporate liability rules can induce the first-best outcome only if firms can condition compensation on detection and the enforcement system is good enough. In other circumstances, unless individual sanctions can be very high, optimal mechanisms typically impose both corporate and individual liability.
    Keywords: illegal behavior; deterrence; agency problems; moral hazard; corporate liability; corporate crime
    JEL: D82 K21 L49
    Date: 2014
  10. By: Pol Antra; Teresa C. Fort; Felix Tintlenot
    Abstract: This paper studies the extensive and intensive margins of firms' global sourcing decisions. We develop a quantifiable multi-country sourcing model in which heterogeneous firms self-select into importing based on their productivity and country-specific variables. The model delivers a simple closed-form solution for firm profits as a function of the countries from which a firm imports, as well as those countries' characteristics. In contrast to canonical models of exporting in which firm profits are additively separable across exporting markets, we show that global sourcing decisions naturally interact through the firm's cost function. In particular, the marginal change in profits from adding a country to the firm's set of potential sourcing locations depends on the number and characteristics of other countries in the set. Still, under plausible parametric restrictions, selection into importing features complementarity across markets and firms' sourcing strategies follow a hierarchical structure analogous to the one predicted by exporting models. Our quantitative analysis exploits these complementarities to distinguish between a country's potential as a marginal cost-reducing source of inputs and the fixed cost associated with sourcing from this country. Counterfactual exercises suggest that a shock to the potential benefits of sourcing from a country leads to significant and heterogeneous changes in sourcing across both countries and firms.
    Date: 2014–12
  11. By: Hikaru Saijo
    Abstract: I study a business cycle model where agents learn about the state of the economy by accumulating capital. During recessions, agents invest less, and this generates noisier estimates of macroeconomic conditions and an increase in uncertainty. The endogenous increase in aggregate uncertainty further reduces economic activity, which in turn leads to more uncertainty, and so on. Thus, through changes in uncertainty, learning gives rise to a multiplier effect that amplies business cycles. I use the calibrated model to measure the size of this uncertainty multiplier.
  12. By: Ryan Banerjee
    Abstract: The SME sector is often hailed as an important engine of economic growth. But recent research suggests that young rather than small firms are the main contributors to employment growth. This paper shows that young firms are also key contributors to profit growth across advanced economies. It them examines the impact of financial constraints on profitability across the age distribution of SMEs. We find that start-ups which report finance as their greatest constraint receive smaller new loans and evidence that financing constraints reduce start-up profitability. We do not find a similar relationship for older SMEs in pre-crisis data. Therefore, policy initiatives which ease financing constraints for start-ups could play an important role in boosting economic growth. However, following the protracted financial crisis in Europe, we also find that financial constraints reduced profitability in the cohort of more mature firms that were start-ups just before the financial crisis.
    Keywords: firm age, firm size, SMEs, financial constraints, economic growth
    Date: 2014–12
  13. By: Fafchamps, Marcel (Stanford University); Woodruff, Christopher (The University of Warwick)
    Abstract: We conduct a business plan competition to determine whether survey instruments or panel judges are able to predict which participating firms will grow fastest. Participants were required to submit a simple six- to eight-page business plan and then defend that plan before a panel of three or four judges. We surveyed the pool of applicants shortly after they applied, and then one and two years after the business plan competition. We use the follow-up surveys to construct a measure of enterprise growth, and use the baseline surveys and panel scores to construct measures of the potential for growth of the enterprise. We find that a measure of ability correlates quite strongly with future growth, but that the panel scores add to predictive power even after controlling for the measure of ability and other variables from the survey. The survey questions appear to have more power to explain the variance in growth. Participants presenting before the panel were give a chance to win customized management training. Fourteen months after the training, we find no positive effect of the training on growth of the business.
    Keywords: Growth
    Date: 2014

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