nep-bec New Economics Papers
on Business Economics
Issue of 2015‒05‒09
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. Large Firm Dynamics and the Business Cycle By Vasco Carvalho; Basile Grassi
  2. Free entry oligopoly, Cournot, Bertrand and relative profit maximization By Satoh, Atsuhiro; Tanaka, Yasuhito
  3. Innovation budgeting over the business cycle and innovation performance By Hud, Martin; Rammer, Christian
  4. Relative profit maximization in duopoly: difference or ratio By Satoh, Atsuhiro; Tanaka, Yasuhito
  5. Good Firms, Worker Flows and Local Productivity By Michel Serafinelli
  6. Networks and Manufacturing Firms in Africa: Results from a Randomized Field Experiment By Marcel Fafchamps; Simon R. Quinn
  7. Mobility across Firms and Occupations among Graduates from Apprenticeship By Bernd Fitzenberger; Stefanie Licklederer; Hanna Zwiener
  8. What Do Private Equity Firms Say They Do? By Paul Gompers; Steven N. Kaplan; Vladimir Mukharlyamov
  9. The Great Trade Collapse and the Spanish Export Miracle: Firm-level Evidence from the Crisis By Peter S. Eppinger; Nnicole Meythaler; Marc-Manuel Sindlinger; Marcel Smolka
  10. Investment Efficiency, State-Owned Enterprises and Privatisation: Evidence from Vietnam in Transition By O'Toole, Conor; Morgenroth, Edgar; Ha, Thi Thu Thuy
  11. Are the Borrowing Costs of Large Financial Firms Unusual? By Ahmed, Javed I.; Anderson, Christopher W.; Zarutskie, Rebecca

  1. By: Vasco Carvalho; Basile Grassi
    Abstract: Do large firm dynamics drive the business cycle? We answer this question by developing a quantitative theory of aggregate fluctuations caused by firm-level disturbances alone. We show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle, without appealing to aggregate shocks. We offer a complete analytical characterization of the law of motion of the aggregate state in this class of models – the firm size distribution – and show that the resulting closed form solutions imply aggregate output and productivity dynamics which are: (i) persistent, (ii) volatile and (iii) exhibit time-varying second moments. We explore the key role of moments of the firm size distribution – and, in particular, the role of large firm dynamics – in shaping aggregate fluctuations, theoretically, quantitatively and in the data.
    Keywords: large firm dynamics, firm size distribution, random growth, aggregate fluctuations
    Date: 2015–04
  2. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We study a symmetric free entry oligopoly in which firms produce differentiated goods so as to maximize their relative profits. The relative profit of each firm is the difference between its profit and the average of the profits of other firms. We show that whether firms determine their outputs or prices, the equilibrium price when firms maximize their relative profits is lower than the equilibrium price when firms maximize their absolute profits, but the equilibrium number of firms under relative profit maximization is smaller than the equilibrium number of firms under absolute profit maximization. This is because each firm is more aggressive and produces larger output under relative profit maximization than under absolute profit maximization.
    Keywords: free entry, oligopoly, relative profit maximization
    JEL: D43 L13
    Date: 2015–05–03
  3. By: Hud, Martin; Rammer, Christian
    Abstract: The global economic crisis of 2008/2009 hit many firms hard. Faced with rapidly declining sales and highly uncertain economic prospects, firms had to cut costs and reconsider their business strategies. With respect to innovation, cost cutting often means to stop or underresource innovation projects which may harm a firm's long-term competitiveness. Firms may therefore refrain from reducing innovation budgets during crises but rather deliberately allocate more resources to innovation activities in order to update their product portfolio for the following recovery. Our analysis examines the effects of changes in innovation budgets during the most recent economic crisis on firms' post-crisis innovation performance. Based on firm-level panel data from the German Innovation Survey covering the period 2006 to 2012, we find a positive effect of crisis adjustment. Raising the ratio of innovation expenditure to sales does increase subsequent sales of market novelties, but not of product imitations. Our findings are dependent upon the way business cycle effects are measured, however. While the results hold for macroeconomic business cycle indicators (change in real GDP), they do not for demand changes in a firm's primary sales market. This may imply that lower opportunity costs of innovation during an economic crisis are transferred into higher post-crisis new product sales by firms in markets less strongly affected by the crisis.
    JEL: O31 O32 E32 L25 D22
    Date: 2015
  4. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We compare formulations of relative profit maximization in duopoly with differentiated goods, 1) (Difference case) maximization of the difference between the profit of one firm and that of the other firm, 2) (Ratio case) maximization of the ratio of the profit of one firm to the total profit. We show that in asymmetric duopoly the equilibrium output of the more efficient (lower cost) firm in the ratio case is larger than that in the difference case and the price of the good of the more efficient firm in the ratio case is lower than that in the difference case. For the less efficient firm (higher cost firm) we obtain the converse results.
    Keywords: duopoly, relative profit maximization, difference, ratio
    JEL: D43 L13
    Date: 2015–05–03
  5. By: Michel Serafinelli
    Abstract: A clear consensus has emerged that agglomeration economies are an important factor explaining why firms cluster next to each other. Yet, because of non-trivial measurement challenges, disagreement remains over the sources of these agglomeration effects. This paper is the first to present direct evidence showing how localized knowledge spillovers arise from workers changing jobs within the same local labor market. Specifically, I assess the extent to which firm-to-firm labor mobility enhances the productivity of firms located near highly productive firms. Using a unique dataset combining Social Security earnings records and balance sheet information for Veneto, a region in Italy with many successful industrial clusters, I first identify a set of highly productive firms, then show that hiring workers with experience at these firms significantly increases the productivity of other firms. To address identification threats arising from both contemporaneous and future unobservable firm-level productivity shocks correlated with hiring, I use control function methods drawn from the productivity literature and a novel instrumental variable strategy, which exploits downsizing events at highly productive firms. My findings imply that worker flows can explain around 10 percent of the productivity gains experienced by incumbent firms when new highly productive firms are added to a local labor market.
    Keywords: productivity, agglomeration economies, local knowledge spillovers, linked employer-employee data, labor mobility, instrumental variable.
    JEL: R10 D24 J31 J60
    Date: 2015–04–29
  6. By: Marcel Fafchamps; Simon R. 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 significant diffusion of business practices only in terms of VAT registration and having a bank current account. This diffusion is a combination of diffusion of innovation and simple imitation. At the time of our experiment, all three studied countries were undergoing large changes in their VAT legislation.
    JEL: D22 L26 O33
    Date: 2015–04
  7. By: Bernd Fitzenberger (University of Freiburg); Stefanie Licklederer (University of Freiburg); Hanna Zwiener (Humboldt-Universität zu Berlin)
    Abstract: Distinguishing carefully between mobility across firms and across occupations, this study provides causal estimates of the wage effects of mobility among graduates from apprenticeship in Germany. Our instrumental variables approach exploits variation in regional labor market characteristics. Pure firm changes and occupation-and-job changes after graduation from apprenticeship result in average wage losses, whereas an occupation change within the training firm results in persistent wage gains. For the majority of cases a change of occupation involves a career progression. In contrast, for job switches the wage loss dominates. Creation Date: 2015-03
    Keywords: Apprenticeship Training, Job Mobility, Occupational Mobility, Wages
    JEL: J62 J24 J30 J31
  8. By: Paul Gompers (Harvard Business School, Finance Unit); Steven N. Kaplan (University of Chicago Booth School of Business); Vladimir Mukharlyamov (Harvard University)
    Abstract: We survey 79 private equity investors with combined AUM of over $750B about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on IRR and multiples to evaluate investments. Their LPs focus more on absolute performance. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.
    Date: 2015–04
  9. By: Peter S. Eppinger (University of Tübingen); Nnicole Meythaler (Institute for Applied Economic Research (IAW) at the University of Tübingen); Marc-Manuel Sindlinger (University of Bonn); Marcel Smolka (Department of Economics and Business, Aarhus University, Denmark and IZA)
    Abstract: We provide novel evidence on the micro-structure of international trade during the 2008 financial crisis and subsequent global recession exploring a rich firm-level data set from Spain. The analysis is motivated by the surprisingly strong export performance of Spain in the aftermath of the great trade collapse (dubbed by some as the “Spanish export miracle”). The focus of our analysis is on changes at the extensive and intensive firm-level margins of trade, as well as on performance differences (jobs, productivity, and firm survival) across firms that differ in their export status. We find no adverse effects of the financial crisis on foreign market entry or exit, but a considerable increase in the export intensity of firms after the financial crisis. Moreover, we find that those firms that entered the crisis as exporters (and continued exporting throughout the crisis years) were more resilient to the crisis than those firms that restricted their sales to the domestic market. Finally, in contrast to exporters, non-exporters experienced a significant deterioration in their total factor productivity, which led to an overall decline in the productivity of a significant number of industries in Spanish manufacturing.
    Keywords: international trade, financial crisis, manufacturing, firm-level data, Spain
    JEL: F10 F14 G01 D24
    Date: 2015–04–29
  10. By: O'Toole, Conor; Morgenroth, Edgar; Ha, Thi Thu Thuy
    Abstract: Our research tests the difference in investment efficiency between state-owned enterprises (SOEs) and private firms and then evaluates the effect of privatisation and equitisation policies on the investment efficiency of former state owned enterprises (SOEs). We use a novel dataset from Viet Nam which covers large and non-listed SMEs across the construction, manufacturing, and services sectors. Our methodology uses a structural model to test the relationship between Tobin's Q and capital spending. We find no evidence of investment spending being linked to marginal returns by SOEs across all sectors and size classes. However, former SOEs which have been privatised and equitized with a minority state shareholding display positive links between Q and investment. In fact, the link is stronger for these firms than for private firms.498
    Keywords: investment/manufacturing/Policy/Services
    Date: 2015–03
  11. By: Ahmed, Javed I. (Board of Governors of the Federal Reserve System (U.S.)); Anderson, Christopher W. (Harvard University); Zarutskie, Rebecca (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Estimates of investor expectations of government support of large financial firms are often based on large financial firms' lower borrowing costs relative to smaller financial firms. Using pricing data on credit default swaps (CDS) and corporate bonds over the period 2004 to 2013, however, we find that the CDS and bond spreads of financial firms are no more sensitive to borrower size than the spreads of non-financial firms. Outside of the financial crisis period, spreads are more sensitive to borrower size in several non-financial industries. We find that size-related differences in spreads are partially driven by higher liquidity and recovery rates of larger borrowers. Prior to the financial crisis, we also find that financial firms exhibited generally lower spreads that were less sensitive to size than spreads for several other industries. Our results suggest that estimates of implicit government guarantees to financial firms may overemphasize size-related borrowing cost differentials. However, our analysis also suggests that, prior to the financial crisis, investor expectations of government support, or generally reduced risk perceptions, may have reduced borrowing costs for the financial industry, as a whole.
    Keywords: Borrowing costs; credit default swaps; financial industry; implicit government guarantee; size effect; Too-Big-to-Fail
    JEL: G21 G22 G24 G28
    Date: 2015–03–12

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