nep-bec New Economics Papers
on Business Economics
Issue of 2015‒05‒16
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Sharing a Director with a Peer By Berg, Tatjana; Horsch, Philipp; Schmid, Markus
  2. Inside the Virtuous Cycle between Productivity, Profitability, Investment and Corporate Growth: An Anatomy of China Industrialization By X. Yu; G. Dosi; M. Grazzi; J. Lei
  3. CEO fitness and firm value By Limbach, Peter; Sonnenburg, Florian
  4. Demand learning and firm dynamics: evidence from exporters. By N. Berman; V. Rebeyrol; V. Vicard
  5. Efficient Firm Dynamics in a Frictional Labor Market By Leo Kaas; Philipp Kircher
  6. Innovate or Die: How Hong Kong-owned Manufacturing Firms in China Can Survive and Thrive By Naubahar Sharif
  7. Institutional Dichotomy and Cross-Border Inbound Acquisitions: A Study of Three Cases By Reddy, Kotapati Srinivasa
  8. The Importance of Mittelstand Firms for Regional Apprenticeship Activity - Lessons for Policy - By Jahn, Vera
  9. Firm-Specific Information and Explicit Collusion in Experimental Oligopolies By Francisco Gomez-Martin; Sander Onderstal; Joep Sonnemans
  10. Input-Trade Liberalization and Markups By Haichao Fan; Yao Amber Li; Tuan Anh Luong
  11. Quality and Export Performance Evidence from Cheese Industry By Duvaleix-Tréguer, Sabine; Emlinger, Charlotte; Gaigné, Carl; Latouche, Karine
  12. Integrating profitability prospects and cash management By Décamps, Jean-Paul; Villeneuve, Stéphane
  13. Home Bias in Multimarket Cournot Games By Catherine Roux; Luís Santos-Pinto; Christian Thöni
  14. How Sukuk Shapes Firm Performance By Paul-Olivier KLEIN; Laurent WEILL; Christophe J. GODLEWSKI
  15. The location of new firms - Influence of commuting behaviour By Backman, Mikaela; Karlsson, Charlie

  1. By: Berg, Tatjana; Horsch, Philipp; Schmid, Markus
    Abstract: Exploiting a unique feature of the Clayton Antitrust Act, we analyze how directors holding outside directorships at peer firms affect firm value and performance of financial firms. We find that directors serving simultaneously at horizontally-related firms have a negative impact on firm value and performance, whereas directors holding outside directorships in vertical industries, i.e., customer or supplier industries, enhance firm value and performance. Our results suggest a tradeoff between director experience and conflicts of interest. Further, stock market reactions provide evidence that investors recognize the value-diminishing effect of horizontal directors as well as the value-increasing effect of vertical directors.
    Keywords: Governance, Firm value, Financial institutions
    JEL: G20 G32 G34
    Date: 2015–04
  2. By: X. Yu; G. Dosi; M. Grazzi; J. Lei
    Abstract: This article explores the dynamics of market selection by investigating of the relationships linking productivity, profitability, investment and growth, based on China's manufacturing firm-level dataset over the period 1998-2007. First, we find that productivity variations, rather than relative levels, are the dominant productivity-related determinant of firm growth, and account for 15%-20% of the variance in firms' growth rates. The direct relation between profitability and firm growth is much weaker as it contributes for less than 5% to explain the different patterns of firm growth. On the other hand, the profitability-growth relationship is mediated via investment. Firm's contemporaneous and lagged profitabilities display positive and significant effect on the probability to report an investment spike, and, in turn, investment activity is related to higher firm growth.
    JEL: D22 L10 L20 L60 O30
    Date: 2015–04
  3. By: Limbach, Peter; Sonnenburg, Florian
    Abstract: We provide evidence for a positive impact of CEO fitness on firm value (Tobin's Q). For each of the years 2001 to 2011, we define S&P 1500 CEOs as fit if they finish a marathon. Fit CEOs are associated with higher firm profitability and M&A announcement returns. Effects on firm value are strongest for CEOs with above-median age, above-median tenure and high workload, consistent with the positive impact of fitness on cognitive functions, performance and stress coping found in the literature. Results are robust to tests for endogeneity, including CEOfirm fixed effects, time-varying firm and industry effects, permutation tests, reverse causality and sudden deaths. They provide an explanation for the growing importance of fitness in the managerial labor market.
    Keywords: CEO fitness,CEO heterogeneity,firm value,mergers and acquisitions,work stress
    JEL: G32 G34 J24
    Date: 2015
  4. By: N. Berman; V. Rebeyrol; V. Vicard
    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
  5. By: Leo Kaas (Department of Economics, University of Konstanz, Germany); Philipp Kircher (Department of Economics, University of Edinburgh, United Kingdom)
    Abstract: We develop and analyze a labor market model in which heterogeneous firms operate under decreasing returns and compete for labor by posting long-term contracts. Firms achieve faster growth by offering higher lifetime wages, which allows them to fill vacancies with higher probability, consistent with recent empirical findings. The model also captures several other regularities about firm size, job flows and pay, and generates sluggish aggregate dynamics of labor market variables. In contrast to existing bargaining models with large firms, efficiency obtains and the model allows a tractable characterization over the business cycle
    Keywords: Labor market search, multi-worker firms, job creation and job destruction
    JEL: E24 J64 L11
    Date: 2015–04–21
  6. By: Naubahar Sharif (Division of Social Science, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology)
    Abstract: IEMS Faculty Associate Prof. Naubahar Sharif looks into the challenges facing Hong Kong-owned manufacturing firms in Guangdong, assesses the role of innovation in firm survival, and recommends areas for improvement to policymakers in both Hong Kong and Guangdong.
    Keywords: innovation, manufacturing, policy, China, Hong Kong, Guangdong
    JEL: O31 O32
    Date: 2014–07
  7. By: Reddy, Kotapati Srinivasa
    Abstract: The extant literature on cross-border mergers and acquisitions suggested that firm-specific, deal-specific, and country-specific determinants affect both negotiation process and post-merger integration. In particular, a great extent of strategy, international business and finance scholars argued that legal and regulatory infrastructure, level of investor protection, financial markets development, international taxation provisions, and macroeconomic indicators have been most important factors significantly affecting the cross-border acquisitions completion. In fact, we found significant knowledge gap on why cross-border acquisitions often litigate, delay and unsuccessful, especially when target firm is associated with developing country. With this in mind, we develop and analyze three litigated cross-border acquisitions connected to the host country-India: (i) Vodafone acquisition of Hutchison in 2007, (ii) unsuccessful cross-border merger between Bharti Airtel and MTN Group in 2008-09, and (iii) Vedanta Resources acquisition of Cairn India in 2010-11. To do so, we adopt qualitative case study research both to test existing theory and to build new theory. Hence, we accomplish research goals based on our new multi-case research design that assist qualitative researchers to overcome institutional barriers accountable for data collection as well as to study the emerging markets phenomenon. Regarding theory testing, we test seventeen theories propounded in management-related literature. Based on limitations of the existing theories and multi-case proofs, we develop new theory and offer lawful propositions for future research that would advance the current knowledge on institutional role in cross-border acquisitions. In addition, we also recommend an alternative foreign market entry model for making successful business entry in developing countries. We therefore conclude that a given country’s weak regulatory system benefits acquirer, target, or both; simultaneously, the behavior would adversely affect on economic benefit of that host country.
    Keywords: Cross-border mergers and acquisitions; Internationalization; Foreign market entry strategies; International diversification; Foreign direct investment; International business research; Institutional theory; Case study research; Emerging markets; Asian markets; India
    JEL: F2 F21 F23 G3 G34 G38 K2 K22 L1 M1 M16
    Date: 2014
  8. By: Jahn, Vera (Helmut Schmidt University, Hamburg)
    Abstract: Politicians frequently emphasize the importance of Mittelstand firms for the economy, thereby parti- cularly referring to their enormous engagement in training apprentices. However, there is yet almost no empirical evidence on the question whether Mittelstand firms are in fact excessively active in trai- ning apprentices. This paper contributes to the literature by studying whether the relative importance of owner-managed SMEs has an effect on firms’ apprenticeship activity. Using a cross section of West German NUTS-3-regions, we find a significantly positive relation between the relative importance of Mittelstand firms and apprenticeship activity on the regional level. However, on the national level an increase in the share of Mittelstand firms turns out to be without effect on apprenticeship activity.
    Keywords: apprenticeship; Mittelstand firms; owner-management; SMEs; Germany; regional spillovers
    JEL: C21 D23 I21
    Date: 2015–05–05
  9. By: Francisco Gomez-Martin (University of Amsterdam); Sander Onderstal (University of Amsterdam); Joep Sonnemans (University of Amsterdam)
    Abstract: We experimentally study the effect of information about competitors’ actions on cartel stability and firms’ incentives to form cartels in Cournot markets. As in previous experiments, markets become very competitive when individualized information is available and participants cannot communicate. In contrast, when communication is possible, results reverse: Markets become less competitive and cartels become more stable when individualized information is available. We also observe that the extra profits that firms obtain thanks to the possibility to communicate are higher when individualized information is present, suggesting that firms have greater incentives to form cartels in that situation.
    Keywords: Cournot oligopoly; Cartels; Information; Experiments
    JEL: C92 L13 L41
    Date: 2015–05–10
  10. By: Haichao Fan (School of International Business Administration, Shanghai University of Finance and Economics); Yao Amber Li (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Tuan Anh Luong (School of International Business Administration, Shanghai University of Finance and Economics)
    Abstract: This paper presents theory and evidence from Chinese firm-product data that, given firm productivity, trade liberalization increases product markups. This finding calls for a reconsideration of the well-established imports-as-market-discipline hypothesis. This paper further verifies underlying mechanisms behind this finding: input tariff reductions decrease marginal costs, and tariff effects on markup adjustments are more profound among firms of higher import dependence. By comparing results for two trade regimes -- ordinary trade wherein firms pay import tariffs to import, and processing trade wherein firms are not subject to import tariffs -- this paper finds that the aforementioned effects only apply to ordinary trade.
    Keywords: Trade liberalization, Input tariff, Markup, Marginal cost, Ordinary trade, Processing trade, Output tariff
    JEL: F12 F14 L11
    Date: 2015–05
  11. By: Duvaleix-Tréguer, Sabine; Emlinger, Charlotte; Gaigné, Carl; Latouche, Karine
    Abstract: The paper questions the impact of quality label on firm export competitiveness in the cheese and cream industry. We use firm level data from the French custom and an original dataset of firms and products concerned by protected designations of origin (PDO). Our econometric estimations shows that PDO labelling impacts both the extensive margin (the number of destinations) and the intensive margin of trade (the value of trade), and increases the average export unit value. The role of label in export performance varies with the market of destination and is more important when exporting to EU countries.
    Keywords: Quality Label, PDO, Trade Margin, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, International Relations/Trade,
    Date: 2015–04
  12. By: Décamps, Jean-Paul; Villeneuve, Stéphane
    Abstract: We develop a bi-dimensional dynamic model of corporate cash management in which shareholders learn about a firm's profitability and weigh the costs and benefits of holding cash. We explicitly characterize the optimal payout policy. We explain how the evolution of the strength of shareholders' beliefs about profitability and changes in corporate cash management are intertwined. The model predicts that both cash target levels and target dividend payout ratios are increasing in profitability prospects. This yields novel insights into the relationship between profitability prospects, precautionary cash savings, dividend policy and the dynamics of firm value.
    Date: 2015–04
  13. By: Catherine Roux; Luís Santos-Pinto; Christian Thöni
    Abstract: We explore the role played by trade costs for the home bias in trade. In a series of Cournot duopoly experiments with a home and an export market, we compare output choices when firms face different levels of export costs. We find that there is two-way trade in identical products and that firms hold the majority market share in their home market. The resulting home bias turns out to be, however, stronger than that predicted by theory, and it even occurs without trade costs. We have strong evidence that collusion contributes to the home bias observed in our experiment.
    Keywords: Intra-Industry Trade; Spatial Oligopoly; Home Bias; Collusion; Experiment
    JEL: F12 L13 C91
    Date: 2015–04
  14. By: Paul-Olivier KLEIN (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg); Christophe J. GODLEWSKI (LaRGE Research Center, Université de Strasbourg)
    Abstract: With the large expansion of Islamic finance in the recent years, sukuk, which are the Sharia-compliant substitute to conventional bonds, are now becoming more prominent. The aim of this study is to examine the impact of sukuk issuance on firm performance. To do so, we analyze how stock market performance and operating performance are influenced by issuance of sukuk and bonds on a sample of Malaysian listed companies. We consider the short-term and medium-term stock market reaction through the computation of cumulative abnormal returns and buy-and-hold abnormal returns. We investigate the impact on operating performance by performing regressions and by calculating abnormal operating performance so that we can compare how issuance affects similar firms. We find that sukuk issuance generates a negative stock market reaction both in the short-term and in the medium-term. We also find evidence that issuing sukuk hampers operating performance. The analysis of abnormal operating performance shows that sukuk issuers have better performance than their matched bond issuers, but that sukuk contributes to reduce the gap in performance over time. Overall our results support the view that sukuk issuance hampers stock market performance, but that it is not attributable to a signaling effect on the bad financial situation of the issuer. We interpret our findings as evidence of adverse selection taking place on the financed projects and agency problems stemming from the specific sukuk structuring with stock market investors more reluctant to invest in sukuk issuers.
    Keywords: Debt instruments, Islamic finance, Emerging countries.
    JEL: G14 P51
    Date: 2015
  15. By: Backman, Mikaela (Centre for Entrepreneurship and Spatial Economics (CEnSE), Jönköping International Business School, & Centre of Excellence for Science and Innovation Studies (CESIS)); Karlsson, Charlie (Centre of Excellence for Science and Innovation Studies (CESIS), Jönköping International Business School, Blekinge Institute of Technology, & University of Southern Denmark)
    Abstract: In this paper, we analyse where people who become self-employed actually start their firms. In the entrepreneurship literature, it is generally assumed that individuals who start a firm start it where they live. We question this general assumption and show that this does not hold for commuters. Our results show that of those individuals that were short-distance commuters in 2007 and become self-employed in 2008, 90.1 percent started their firm in their work munici-pality. Only 9.4 percent started their firm in their residence municipality. For long-distance commuters, the figures were 93.6 and 6.4 percent, respectively. Our econometric estimations show that the probability to start a firm in the work municipality increases with the number of years as a commuter, with commuting to a larger municipality, and with the relative size of the work municipality compared to the municipality of residence. Our results indicate that the entrepreneurship literature must reconsider its general statement that individuals start firms where they live.
    Keywords: Entrepreneurship; self-employment; location; commuting; networks; micro-level data
    JEL: C21 J24 L26 R12
    Date: 2015–05–07

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