nep-bec New Economics Papers
on Business Economics
Issue of 2015‒03‒27
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Gender and dynamic agency: theory and evidence on the compensation of top executives By Albanesi, Stefania; Olivetti, Claudia; Prados, María José
  2. Women on the board and executive duration: Evidence for European listed firms By Buchwald, Achim; Hottenrott, Hanna
  3. Conceptualizing and Developing Alignment Model between Business Strategy and Knowledge Management Strategy By Yue-Yang Chen; Hui-Ling Huang
  4. Debt concentration of European Firms By Giannetti, Caterina
  5. Demand learning and firm dynamics: evidence from exporters By Nicolas Berman; Vincent Rebeyrol; Vincent Vicard
  6. Financial constraints and modes of market exit in Slovenian manufacturing and service firms By Nina Ponikvar; Katja Zajc Kejžar; Darja Peljhan
  7. Costs of trade and self-selection into exporting and importing: The case of Turkish manufacturing firms By Dalgic, Basak; Fazlioglu, Burcu; Gasiorek, Michael
  8. Organisational routines may not be effective for the emerging market firms By Rifat Kamasak; Meltem Yavuz
  9. Pricing-to-market, Trade Policy, and Market Power By Nicolas Berman; Alan Asprilla; Olivier Cadot; Mélise Jaud
  10. Who benefits from state corporate tax cuts? A local labour markets approach with heterogeneous firms By Juan Carlos Suárez Serrato; Owen Zidar
  11. Ownership networks and aggregate volatility By Lorenzo Burlon
  13. Does Mandatory Shareholder Voting Prevent Bad Acquisitions? By Becht, Marco; Polo, Andrea; Rossi, Stefano
  14. Could tariffs be pro-cyclcial? By James Lake; Maia K. Linask
  15. Export behaviour of SMEs in the Swedish computer service industry By Falk, Martin; Hagsten, Eva

  1. By: Albanesi, Stefania (Federal Reserve Bank of New York); Olivetti, Claudia; Prados, María José
    Abstract: We document three new facts about gender differences in executive compensation. First, female executives receive a lower share of incentive pay in total compensation relative to males. This difference accounts for 93 percent of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million increase in firm value generates a $17,150 increase in firm-specific wealth for male executives and a $1,670 increase for females. Third, female executives are more exposed to bad firm performance and less exposed to good firm performance relative to male executives. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the “managerial power" or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.
    Keywords: gender differences in executive pay; incentive pay; pay-performance sensitivity
    JEL: G3 J16 J31 J33 M12
    Date: 2015–03–01
  2. By: Buchwald, Achim; Hottenrott, Hanna
    Abstract: The participation of women in top-level corporate boards (or rather the lack of it) is subject to intense public debate. Several countries are considering legally binding quotas to increase the share of women on boards. Indeed, research on board diversity suggests positive effects of gender diverse boards on corporate governance and even firm performance. The mechanism through which these benefits materialize remain however mostly speculative. We study boards of directors in a large sample of listed companies in 15 European countries over the period 2003-2011 and find that female representation on firms' non-executive boards is associated with reduced turnover and an increase in tenure of executive board members. An increase in the performance-turnover sensitivity of executives suggests that this effect may be explained by better monitoring practices rather than by less effective control or a 'taste for continuity'.
    Keywords: Corporate Governance,Executive Turnover,Gender,TMT Diversity
    JEL: G34 J24 J63 L25 M00
    Date: 2015
  3. By: Yue-Yang Chen (Department of Business Administration, I-Shou University); Hui-Ling Huang (Department of Business Administration, Chang Jung Christian University)
    Abstract: Since knowledge has been regarded as one of the important resources for firms to compete in today’s competitive environment, knowledge management (KM) are so crucial for achieving superior performance. In this vein the strategy of knowledge is likely to be a critical issue of strategic choice for the firm. Evidences showed that the implementation of KM strategy can cultivate organizational dynamic capabilities to improve knowledge quality and quantity, as well as for consolidating the value and practicability of knowledge. Thus, according to the previous research on KM field, this study tries to construct and develop a KM fit model. We contend that the alignment effect will contribution to knowledge management performance.
    Keywords: Knowledge management strategy, Business strategy, Knowledge management performance
    JEL: D83 M10
    Date: 2014–06
  4. By: Giannetti, Caterina
    Abstract: This paper investigates the level of debt specialization across European firms relying on a cross-country comparable sample of manufacturing firms. We find that a number of firm characteristics -- such as firm size and age -- help predict the firm composition of the various types of debts (i.e. debt specialization) but not the level of each debt share. In particular, we observe that small and young firms have a more concentrated debt structure (i.e. they rely on few types of debt). However, these relationships are not linear and seem to be U-shaped. We also find that Spanish firms have the most diversified debt structure, and that diversified firms are less likely to experience a severe reduction in turnover.
    Keywords: Debt specialization, European firms, Firm financing
    JEL: F20 G32
    Date: 2015–03–12
  5. By: Nicolas Berman (IHEID, The Graduate Institute of International and Development Studies, Geneva and CEPR); Vincent Rebeyrol (Toulouse School of Economics); Vincent Vicard (Banque de France)
    Abstract: This paper provides evidence that learning about demand is an important driver of firms' dynamics. We present a simple model with Bayesian learning in which firms are uncertain about their idiosyncratic demand parameter in each of the markets they serve, and update their beliefs as noisy information arrives in each period. The model predicts that firms update more their beliefs following a new demand shock, the younger they are. To test this learning mechanism, we make use of a specific feature of exporter-level data which contains both the values and the quantities sold by a given firm for the same product in different destination markets. This allows us to derive a methodology that identifies separately the demand shocks faced by the firms and their beliefs about future demand. We find strong support for our main prediction: The updating process appears especially strong in the first years after entry. However, the bulk of accumulated knowledge is lost during short periods of exit. Second, we consider implications of this prediction for firm growth rates and survival. Consistent with the learning model, we find that: (i) the absolute value of the mean growth rate for firms' beliefs decreases with age, as does the variance within cohorts; (ii) exit probability decreases with firms' beliefs and the demand shock the firm faces. Further, demand shocks trigger more exit in younger cohorts.
    Keywords: firm growth, learning, demand, uncertainty.
    JEL: L11 L25 F12 F14
    Date: 2015–03–23
  6. By: Nina Ponikvar (University of Ljubljana, Faculty of Economics); Katja Zajc Kejžar (University of Ljubljana, Faculty of Economics); Darja Peljhan (University of Ljubljana, Faculty of Economics)
    Abstract: The recent financial and economic crisis has brought back the attention to studying the characteristics of surviving firms and those exiting the market. Among these characteristics the access to finance has received large attention, since the economic crisis decreased the availability of finance and increased its costs. Further, literature from industrial organization, entrepreneurship and strategic management all show that factors behind different types of firm exit decisions, such as bankruptcy, voluntary liquidation, mergers and acquisitions (M&A) differ. Our paper studies factors that influence the firm’s decision to exit the market by explicitly considering alternative firm exit modes. Our competing risk models are estimated with a standard multinomial logit model and the alternative multinomial probit model on the population of Slovenian firms in 2006-2012. We distinguish between (1) court driven exit as a result of bankruptcy or forced liquidation; (2) voluntary liquidation, (3) disappearances from the dataset as a result of mergers and acquisitions, and (4) termination based on a resolution/decision of the registration agency or according to the law. We argue that decision over whether to close down a business or to sell out to another company is influenced by financial constraints, firm specific characteristics (size, age, productivity, capital intensity), and industry factors. The paper tests whether different facets of financial constraints and other firm and industry level characteristics hold different degrees of relevance for alternative routes of the firm operations termination. In measuring financial constraints as antecedent to an exit event, we propose the exploratory factor analysis and derive to three dimensions of the financial constraint measure, i.e. liquidity, operational-efficiency factor, and profitability factor and in this way contribute to the financial constraints literature. We contribute to the firm exit literature by showing that court-driven exit, voluntary liquidation and M&A follow diverse exit routes driven by different firm level and industry characteristics. We find that the main difference between bankrupt and liquidated firms is that the choice of exiting through voluntary liquidation is characterized by economic distress while firms choosing to exit by bankruptcy are firms in financial and economic distress. Economically distressed firms have bad prospects because of low or negative profitability and little opportunity for improvement. The main characteristic of financially distressed firms is high leverage level causing problems in repaying debts. Firms that decided to exit by M&A usually have profitability problems, but are not financially distressed.
    Keywords: firm exit, financial constraints, bankruptcy, liquidation, merger and acquisition (M&A)
    JEL: G32 L25 C23
    Date: 2014–07
  7. By: Dalgic, Basak; Fazlioglu, Burcu; Gasiorek, Michael
    Abstract: This paper focuses on self-selection into trade by exporting and importing firms, and on the presence of differential variable and sunk costs between exporters and importers across different categories of imports. In addition the authors consider the role of intensive and extensive margins with respect to products or countries. They use a rich and recent dataset for Turkish manufacturing firms for the period 2003-2010. This allows them to provide a comprehensive analysis of firm heterogeneity and the connection between firm-level performance and international trade. They provide evidence on the remarkable heterogeneity across firms where only-importers (importers) perform better than only-exporters (exporters). They detect a self-selection effect for both importing and exporting firms with a stronger effect for importers. The results suggest that the nature of sunk costs varies between importing and exporting activities with importers facing higher sunk costs. Tariffs represent a potentially important source of variation in the variable costs of trading. When taking the tariffs faced by firms into account, the authors find that the self-selection effect associated with sunk costs is still present but greatly reduced with a smaller reduction for importers compared to exporters.
    Keywords: firm heterogeneity,self-selection,sunk costs,exports,imports
    JEL: D24 F10 M20 L10
    Date: 2015
  8. By: Rifat Kamasak (Yeditepe University, Faculty of Commerce); Meltem Yavuz (Istanbul University; School of Transportation and Logistics)
    Abstract: Understanding the internal dynamics of an organisation’s routines makes it possible to learn more about the organisation, observe the operation of power dynamics, and foresee the potential conflicts that are likely to emerge (Pentland & Feldman, 2005). Eisenhardt and Martin (2000, p. 1106) identify routines as “complex and analytic processes that extensively rely on existing knowledge, linear execution, and repetition to produce predictable outcomes at different organisational levelsâ€. Routines facilitate the learning in the organisations about “what the firm does and how it does†through being transmitted to firm’s culture and employees (Zollo & Winter, 2002). Although organisational routine literature based on the research that was mostly conducted in developed countries suggests a strong association between routinisation and firm performance and sustained competitive advantage, this may not always be true especially for the emerging market firms. Emerging market firms operate in a business environment where rapid economic growth, political instability, investor heterogeneity (as a result of offering different information sets to different investors), high level of uncertainty, financial volatility and risk, less transparency and legal frameworks allowing opportunism, corruption and rent shifting dominate the whole market (Hoskisson et al., 2000; Nowak-Lehmann et al., 2007). Hence, strategic flexibility which “allows firms to respond quickly to dynamic and unstable environmental changes by committing resources to new courses of action, and recognise and act promptly when it is time to halt or reverse existing resource commitments†(Liu et al., 2013, p. 82) is particularly important for the firms operating in emerging markets. Therefore, repetitive and stable routines may not address the context and environment-specific problems of the firms and high strategic flexibility requirement of emerging market firms may discharge routinisation for their strategic operations.As a support to this argument, a recent research (Kamasak, 2013) that was conducted on a multi-industry sample of 176 Turkish firms revealed some noteworthy results. In the study, whilst no relationship between organisational routines and organisational performance was found business processes were significantly associated with performance. In fact, this finding is consistent with the high strategic flexibility requirements of the Turkish firms. Therefore, the suggestion about the ineffectiveness of organisational routines for emerging market firms may be explained within the context of high strategic flexibility requirements of them as a consequence of the country-specific hyperchanging social, economic, and political environments that were highly observed in most emerging markets.
    Keywords: Organisational routines, strategic flexibility, firm performance, emerging market firms
    JEL: M10
    Date: 2014–06
  9. By: Nicolas Berman (IHEID, The Graduate Institute of International and Development Studies, Geneva and CEPR); Alan Asprilla (University of Lausanne); Olivier Cadot (University of Lausanne and CEPR); Mélise Jaud (World Bank)
    Abstract: This paper studies the determinants of pricing-to-market at the firm-level, with a particular focus on the role of firm-specific and policy-induced market power. We use a large dataset containing export values and quantities by product and destination for all exporting firms in 12 developing and emerging countries, over several years. We first show that firms in our sample do price to market, i.e. significantly adjust their unit values in home currency in response to exchange-rate variations. The extent of pricing-to-market is quantitatively limited but highly significant and homogenous across origin countries despite their very different levels of development. We then study how firm performance and trade policy affect pricing-to-market at the firm-level. We find that within a given origin-destination-product cell, large, high-performance exporters price more to market. More importantly, we identify significant effects of trade-policy instruments on pricing-to-market: Higher import tariffs on a destination market are associated with less pricing-to-market, whereas non-tariff measures are associated with more. These results are consistent with models where pricing-to-market is increasing in firm size and market share, and suggest that trade policy has deep effects on market power, the direction of which depends on the type of instrument used.
    Keywords: Pricing-to-market, trade policy, exchange rate, tariffs
    JEL: F12 F13 F14 F31
    Date: 2015–03–23
  10. By: Juan Carlos Suárez Serrato (Duke University); Owen Zidar (The University of Chicago,Booth School of Business)
    Abstract: This paper estimates the incidence of state corporate taxes on the welfare of workers, landowners, and firm owners using variation in state corporate tax rates and apportionment rules. We develop a spatial equilibrium model with imperfectly mobile firms and workers. Firm owners may earn profits and be inframarginal in their location choices due to differences in location-specific productivities. We use the reduced-form effects of tax changes to identify and estimate incidence as well as the structural parameters governing these impacts. In contrast to standard open economy models, firm owners bear roughly 40% of the incidence, while workers and landowners bear 30-35% and 25-30%, respectively.
    JEL: H22 H25 H32 H71 R30 R23 R58 J32 F22 F23
    Date: 2015
  11. By: Lorenzo Burlon (Bank of Italy)
    Abstract: We study how aggregate volatility is influenced by the propagation of idiosyncratic shocks across firms through the network of ownership relations. We use detailed data on cross-holdings as well as the relevant balance sheet information for almost the entire universe of Italian limited liability firms over the period 2005-2013. We first document that the ownership network matters for the correlation of firms' sales. Then, we construct a model where firms are linked through ownership relations and have limited access to credit markets. We characterize the aspects of the network structure that are important for the dynamics of the economy. A calibration to the key features of the Italian economy shows that the volatility implied by the model may account for a sizeable percentage of actual GDP fluctuations. Lastly, we conduct a counterfactual exercise to isolate the role played by the network structure itself in the propagation of idiosyncratic shocks at the aggregate level.
    Keywords: ownership networks, firms, financial frictions, business cycles
    JEL: E32 C68 D58
    Date: 2015–03
  12. By: Eunjung Hyun (Hitotsubashi University)
    Abstract: This paper investigates the determinants and contingencies of corporate law firm’s adoption of a global form. I find that the likelihood of a U.S. law firm to open a foreign branch office increased with its affiliated cities’ level of status up to a point and then decreased during the period of 1980-2011. To further assess whether some of the rush to go global is generated by contagion-driven competitive mimicry, I also examined the influence of structurally equivalent firms – firms that are similar in overall geographic configurations. I find that a firm’ decision to open a foreign branch office is indeed susceptible to recent similar actions by its structurally equivalent peers but it is firms with less-prestigious location profiles that are most susceptible to such social influence. Additional results show that firms having historically pioneered their own unique expansion path were less affected by recent foreign branch openings of their peers. Together, this chapter illustrates how forces such as location-based status, competitive mimicry, and history interact in the complicated fashion in the diffusion of a global form in the legal industry.
    Keywords: going global, organizational theory, law firms, status, mimicry
    Date: 2014–10
  13. By: Becht, Marco; Polo, Andrea; Rossi, Stefano
    Abstract: Previous studies of voting on acquisitions are inconclusive because shareholder approval in the United States is discretionary for management. We study the U.K. where approval is mandatory for deals that exceed a multivariate relative size threshold. We find that in the U.K. shareholders gain 8 cents per dollar at announcement with mandatory voting, or $13.6 billion over 1992-2010 in aggregate; without voting U.K. shareholders lost $3 billion. U.S. shareholders lost $214 billion in matched deals. Differences-in-differences and regression discontinuity analyses support a causal interpretation. The evidence suggests that mandatory voting imposes a binding constraint on acquirer CEOs.
    Keywords: corporate acquisitions; corporate governance; shareholder voting
    JEL: G34 K22
    Date: 2015–03
  14. By: James Lake (Southern Methodist University); Maia K. Linask (University of Richmond)
    Abstract: Conventional wisdom says that tariffs are counter-cyclical. This paper analyzes the relationship between business cycles and applied tariffs using a disaggregated product-level panel dataset covering 72 countries between 2000 and 2011. Strikingly, and counter to conventional wisdom, we find that tariffs are pro-cyclical. This pro- cyclicality is driven by the pre-Great Recession tariff-setting behavior of developing countries on products not subject to temporary trade barriers and does not depend on the importer's perception of the global business cycle or whether the tariff is bound. Results are robust to controlling for variables emphasized in recent literature as important determinants of tariff setting.
    Keywords: Applied tariff, bound tariffs, binding overhang, tariff water, business cycle
    JEL: F13 F14 E32
    Date: 2015–02
  15. By: Falk, Martin; Hagsten, Eva
    Abstract: Export participation of SMEs in Swedish computer services has increased rapidly over the last decade. Despite the increase, export participation rates of SMEs including micro enterprises remain rather low at 13 percent in 2010. Based on uniquely linked firm-level datasets with full coverage of micro enterprises and sole proprietors, this study investigates the determinants of export participation of Swedish SMEs in the computer service industry. Exports include both goods and services. Estimates based on the conditional logit model show a significantly positive relationship between initial labour productivity and the decision to export. An interesting and new finding is that the magnitude of the relationship between the probability to export and initial labour productivity is low once firm effects are controlled for. Surprisingly, the impact of labour productivity on exporting does not differ between micro enterprises and the remaining SMEs (10-249 employees). Furthermore, skill intensity is significantly related to the probability of exporting with low marginal effects. Overall, labour productivity and skill intensity only explain a small proportion of the export boom of Swedish software SMEs.
    Keywords: exports,productivity,computer service industry,human capital,conditional logit model
    JEL: F14
    Date: 2015

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