nep-bec New Economics Papers
on Business Economics
Issue of 2015‒02‒22
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Product Scope and Endogenous Fluctuations By Mark Weder
  2. Contractors networks in public procurement projects: The case of the construction industry in the Veneto region By Silvia Rita Sedita; Roberta Apa
  3. Bank market power and firm performance By Manthos D. Delis; Sotirios Kokas; Steven Ongena
  4. Networks and Manufacturing Fims in Africa: Results from a Randomized Field Experiment By Marcel Fafchamps; Simon Quinn
  5. We Want them all Covered! Collective Bargaining and Firm Heterogeneity. Theory and Evidence from Germany By Florian Baumann; Tobias Brändle
  6. Skills, Tasks and Talent Shortages in a Global Economy By Koch, Michael
  7. Trade in Tasks and the Organization of Firms By Schymik, Jan; Marin, Dalia; Tarasov, Alexander
  8. Human Capital of Spinouts By Natarajan Balasubramanian; Mariko Sakakibara
  9. Ambiguity, Disagreement, and Allocation of Control in Firms By Dicks, David L; Fulghieri, Paolo
  10. Why Do Firms Use Insurance to Fund Worker Health Benefits? The Role of Corporate Finance By Dalton, Christina Marsh; Holland, Sara B.
  11. The Effect of Initial Public Offerings on Firm Innovation By Matthew Crail Johnson
  12. What Shifts the Beveridge Curve? Recruitment Effort and Financial Shocks By Simon Mongey; Gianluca Violante; Alessandro Gavazza
  13. Governance, Firm Size and Innovative Capacity: Regional Empirical Evidence for Germany By Jahn, Vera; Berlemann, Michael
  14. How Can Proprietary Software Firms Take Advantage Over Open Source Communities? Another Story of Pro…fitable Piracy By Thomas Le Texier; Mourad Zeroukhi

  1. By: Mark Weder (School of Economics, University of Adelaide)
    Abstract: Recent empirical evidence suggests that product creation is pro-cyclical and it occurs largely within existing firms. Motivated by these findings, the current paper investigates the role of intra-firm product scope choice in a general equilibrium economy with oligopolistic producers. We show that the multi-product nature of firms makes the economy significantly more susceptible to sunspot equilibria. The estimated indeterminate model generates artificial business cycles that closely resemble empirically observed fluctuations.
    Keywords: Indeterminacy, sunspot equilibria, multi-product firms, business cycles, Bayesian estimation.
    JEL: E32
    Date: 2015–02
  2. By: Silvia Rita Sedita (University of Padova); Roberta Apa (University of Padova)
    Abstract: Our work aims to analyze the inter-organizational relationships of contractors in public procurement projects. We investigate how a firm’s network position affects its performance in public procurement practices, measured as the average value of projects won by the firm. To accomplish this objective, we adopt a social network analysis approach to analyze contractor networks. Our evidence comes from an empirical analysis of the network positions of general contractor firms involved in public procurement projects in the construction industry in the Veneto region from 2008 to 2012. Firm performance is affected by firm partnering practices, which are measured in terms of network centrality indicators. We explore how partnering ability, closeness and brokerage influence firm performance and find that a firm’s partnering ability (i.e., the number of direct firm ties within a public procurement network) is crucial in determining the success of the firm’s public procurement practices. Finally, we propose managerial and policy implications for potential regional development.
    Keywords: construction industry; project organizing; public procurement, social network analysis, firm performance.
    JEL: L14 L74
  3. By: Manthos D. Delis; Sotirios Kokas; Steven Ongena
    Abstract: Does bank market power affect firm performance? We answer this question by examining 25,236 syndicated loan facilities granted between 2000 and 2010 by 296 banks to 9,029 US non-financial firms. Even though recently poorly-performing firms obtain loans from banks with more market power, we find that in the year after loan origination bank market power positively affects firm performance, albeit mostly for moderate levels of market power. Our estimates thus suggest that a moderate level of bank market power not only facilitates access to credit by poorly-performing firms but also boosts the performance of those firms that obtain it.
    Keywords: Bank market power, Lerner index, Firm performance, Syndicated loans
    Date: 2015–02
  4. By: Marcel Fafchamps; Simon Quinn
    Abstract: We run a novel field experiment to link managers of African manufacturing firms.  The experiment features exogenous link formation, exogenous seeding of information and exogenous assignment to treatment and placebo.  We study the impact of the experiment on firm business practices outside of the lab.  We find that the experiment successfully created new variation in social networks.  We find some limited evidence of diffusion of management practices, particularly in terms of firm formalisation and innovation.  Such diffusion appears to be a combination of diffusion of innovation and simple imitation.
    JEL: D22 L26 O33
    Date: 2014–06–19
  5. By: Florian Baumann; Tobias Brändle
    Abstract: This paper establishes a link between the extent of collective bargaining and the degree of productivity dispersion within an industry. In a unionised oligopoly model we show that for only small dierences in productivity levels. a sector-union can design a collective wage contract that covers a wide range of heterogeneous firms. In sectors with higher productivity dispersion, an industry union has an incentive to demand firm-level wage contracts with the most productive firms, so that they can prevent low-productivity firms from leaving collective coverage. However, such firm-level contracts may not prevent firms at the lower end of the productivity distribution from avoiding collective coverage in sectors with high productivity dispersion. We test the predictions of the model using German linked employer-employee data between 1996 and 2010 and find support for our theoretical results.
    Keywords: Collective bargaining; trade unions; heterogeneous rms; unionised oligopoly; linked employer-employee data
    JEL: D22 D43 J51
    Date: 2015–01
  6. By: Koch, Michael
    Abstract: This paper sets up a heterogeneous firms model, where production consists of a continuum of tasks that differ in complexity. Firms hire low-skilled and high-skilled workers to perform these tasks. How firms assign workers to tasks depends on factor prices for the two skill types and the productivity advantage of high-skilled workers in the performance of complex tasks. I study the firms assignment problem under two labor market regimes, which capture the polar cases of fully flexible wages and a binding minimum wage for low-skilled workers. Since the minimum wage lowers the skill premium, it reduces the range of tasks performed by high-skilled workers, which increases firm-level productivity and reduces the mass of active firms. Whereas trade does not affect the firm-internal assignment of workers to tasks, it reduces the range of tasks produced by high-skilled workers within firms and thereby lowers firm-level productivity, if low-skilled wages are fixed by a minimum wage. In this case trade leads to higher per-capita income for both skill types and thus to higher welfare in the open than in the closed economy, whereas inequality between the two skill types decreases.
    JEL: F12 F16 F10
    Date: 2014
  7. By: Schymik, Jan; Marin, Dalia; Tarasov, Alexander
    Abstract: We incorporate trade in tasks l a Grossman and Rossi-Hansberg (2008) into the international trade theory of fi rm organization of Marin and Verdier (2012) to examine how off shoring aff ects the way fi rms organize. We test the predictions of the model based on firm level data of 660 Austrian and German multinational firms with 2200 subsidiaries in Eastern Europe and we show that the data are consistent with the theory. We fi nd that o ffshoring of production tasks leads firms to reorganize to more decentralized management improving competitiveness of offshoring firms. We show further that offshoring of skilled managers relaxes the 'war for talent' constraint but toughens competition and thus has an ambiguous impact on the level of decentralization and CEO wages of offshoring firms. In sufficiently open economies, however, managerial offshoring unambiguously leads to more decentralized management.
    JEL: F10 F23 L22
    Date: 2014
  8. By: Natarajan Balasubramanian; Mariko Sakakibara
    Abstract: This study examines how the human capital of spinout founders and the performance of parent firms affect the success of spinouts by using a matched employer-employee dataset of new ventures covering 7 SIC 1-digit sectors in the United States. Our data cover 29,100 spinouts and 379,800 new ventures formed by lone entrepreneurs in 23 states between 1992 and 2005. We evaluate several components of human capital: outcomes of human capital investments vs. human capital investments, task-related human capital vs. non-task-related human capital, and individual human capital vs. group capital, and examine whether these types of human capital affect spinout performance differently. We find that spinout founder’s earnings (an outcome of human capital investment) and industry experience (task-related human capital) prior to spinout formation have strong positive correlations with spinout performance, as measured by size, wage and growth rate. We also find that group experience of spinout founders prior to spinout formation has a positive correlation with spinout performance, though this effect is slightly weaker and smaller than those of spinout founder’s earnings and industry experience. The effects of these three measures of human capital are mostly present after controlling for parent firm establishment fixed effects. We find some evidence that the size of parent firm establishments has a positive correlation with spinout performance, but this effect does not hold after controlling for parent firm fixed effects. Finally, we find that founder’s earnings, industry experience, group experience and parent firm size are more important during the early stage of spinout formation.
    Date: 2015–01
  9. By: Dicks, David L; Fulghieri, Paolo
    Abstract: We present a novel source of disagreement grounded in decision theory: ambiguity aversion. We show that ambiguity aversion generates endogenous disagreement between a firm's insider and outside shareholders, creating a new rationale for corporate governance systems. In our paper, optimal corporate governance depends on both firm characteristics and the composition of the outsiders' overall portfolio. A strong governance system is desirable when the value of the firm's assets in place, relative to the growth opportunity, is sufficiently small or is sufficiently large, suggesting a corporate governance life cycle. In addition, more diversified outsiders (such as generalist mutual funds) prefer stronger governance, while outsiders with a portfolio heavily invested in the same asset class as the firm (such as venture capitalists or private equity investors) are more willing to tolerate a weak governance system, where the portfolio companies' insiders have more leeway in determining corporate policies. Finally, we find that ambiguity aversion introduces a direct link between the strength of the corporate governance system and firm transparency, whereby firms with weaker governance should also optimally be more opaque.
    Keywords: ambiguity aversion; corporate governance; disagreement
    JEL: G30
    Date: 2015–02
  10. By: Dalton, Christina Marsh; Holland, Sara B.
    Abstract: When a firm offers health benefits to workers, it exposes the firm to the risk of making payments when workers get sick. A firm can either pay health expenses out of its general assets, keeping the risk inside the firm, or it can purchase insurance, shifting the risk outside the firm. We analyze the firm’s decision to manage this risk. Using data on the insurance decisions of publicly-traded firms, we find that smaller firms, firms with more investment opportunities, and firms that face a convex tax schedule are more likely to hedge the risk of health benefit payments. Health risk is common to all firms, making this application an important contribution to understanding firms’ hedging decisions. Additionally, we reveal new and important determinants of the hedging decision relative to regulatory regimes. We also show that hedging health risk mitigates investment-cash flow sensitivities.
    Keywords: Self-insure, self-fund, hedging, human capital risk, health insurance risk, investment
    JEL: G3 I13
    Date: 2015–02–02
  11. By: Matthew Crail Johnson (Big Innovation Centre)
    Date: 2015–02
  12. By: Simon Mongey (NYU); Gianluca Violante (NYU); Alessandro Gavazza (London School of Economics)
    Abstract: When compared to the early 2000's, the post financial crisis US labor market has produced a persistently higher unemployment rate relative to the level of vacancies posted by firms. In this paper we provide a quantitative general equilibrium model that explains one possible cause for this change and is consistent with a number of cross-sectional firm level facts that have as yet been unexplored in the literature. We posit a simple mechanism by which financial constraints reduce firm entry and growth of young firms. In good times these firms grow quickly and fill vacancies faster than older, slower growing firms. Vacancies posted following the recession are therefore filled more slowly, shifting the Beveridge curve outwards. This mechanism acts through (i) financial frictions, (ii) the time series change in the distribution of firms, (iii) the cross-sectional relationship between vacancy filling rates and firm growth rates, both of which we document empirically and replicate quantitatively.
    Date: 2014
  13. By: Jahn, Vera; Berlemann, Michael
    Abstract: Successful innovation is a precondition for economic prosperity. While various potential determinants of innovative activity have been considered, little empirical evidence is yet available for the influence of firm governance issues. This paper aims at filling this gap in the literature by studying whether the relative importance of owner-managed small and medium sized enterprises has an effect on regional innovative capacity. We therefore combine patent data with data from the firm database of Creditreform, containing information on the governance structure of regional operating enterprises. Using a cross section of German NUTS-3-regions, we identify a significantly positive relation between the relative importance of owner-managed SMEs and innovative capacity. This finding is highly robust when controlling for various sorts of spatial correlation.
    JEL: O31 C21 D23
    Date: 2014
  14. By: Thomas Le Texier (CREM UMR CNRS 6211, University of Rennes 1, France); Mourad Zeroukhi (Foundation of the University of Rennes 1, CREM CNRS UMR 6211 and IDEC)
    Abstract: This paper analyzes the impact on a proprietary software (PS) firm's profit of the activities of an open source software (OSS) community and a piracy channel, as well as on welfare. We develop a model in which the PS firm competes by price with both producers and also selects its compatibility strategy towards the OSS solution and its protection strategy towards the software copy (PPS). We show that the existence of the piracy channel incumbent enables the PS firm to reach out higher profit than when piracy is prevented. A key mechanism at stake is that the PS monopolist can define its compatibility strategy so as to level price competition down while extending its market share at the same time. Although it has to provide some protection efforts towards the piracy channel to do so, the extra revenues it generates always overcome such latter costs. From a regulatory point of view, our results stress that welfare is higher when piracy is prevented while the PS firmsets compatibility towards the OSS solution.
    Keywords: Anti-copy Protection; Compatibility; Externalities; Open Source Software; Piracy; Proprietary Software
    JEL: L11 L82 L86
    Date: 2015–01

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