nep-bec New Economics Papers
on Business Economics
Issue of 2015‒06‒05
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. On firms’ product space evolution: the role of firm and local product relatedness By Alessia Lo Turco; Daniela Maggioni
  2. Trade in Tasks and the Organization of Firms By Marin, Dalia; Schymik, Jan; Tarasov, Alexander
  3. Assessing European firms' exports and productivity distributions: the CompNet trade module By Berthou, Antoine; Dhyne, Emmanuel; Bugamelli, Matteo; Cazacu, Ana-Maria; Demian, Calin-Vlad; Harasztosi, Péter; Lalinsky, Tibor; Meriküll, Jaanika; Oropallo, Filippo; Soares, Ana Cristina
  4. Should the host economy invest in a new industry? The roles of FDI spillovers, development level and heterogeneity of firms By Huu Thanh Tam Nguyen; Ngoc-Sang Pham
  6. Heterogeneous Fixed Export Costs and the Division of Labor By Shintaku, Koji
  7. Procuring Firm Growth: The Effects of Government Purchases on Firm Dynamics By Claudio Ferraz; Frederico Finan; Dimitri Szerman
  8. Firming Up Inequality By Nicholas Bloom; Fatih Guvenen; David J. Price; Jae Song
  9. Immigration, Trade and Productivity in Services: Evidence from UK Firms By Gianmarco I. P. Ottaviano; Giovanni Peri; Greg C. Wright
  10. Heterogeneous firms and the environment: a cap-and-trade program By Lisa Anouliès
  11. Corporate Tax and Location Choice for Multinational Firms By Lawless, Martina; McCoy, Daire; Morgenroth, Edgar; O'Toole, Conor
  12. Employment Protection Legislation and Firm Growth: Evidence from a Natural Experiment By Anders Bornhal; Sven-Olov Daunfeldt; Niklas Rudholm
  13. On the Merit of Equal Pay: When Influence Activities Interact with Incentive Setting By Brice Corgnet; Ludivine Martin; Peguy Ndodjang; Angela Sutan
  14. The Impact of Aligning IT Capability and Operations Strategy on Operational Performance By Masini, Andrea; Bacchetti , Andrea; Perona, Marco; Zanardini, Massimo

  1. By: Alessia Lo Turco; Daniela Maggioni
    Abstract: We explore the role of firm and local product-specific capabilities in fostering the introduction of new products in the Turkish manufacturing. Firms' product space evolution is characterised by strong cognitive path dependence which, however, is relaxed by firm heterogeneity in terms of size, efficiency and international exposure. The introduction of new products in laggard Eastern regions, which is importantly related to the evolution of their industrial output, is mainly affected by firm internal product specific resources. On the contrary, product innovations in Western advanced regions hinge relatively more on the availability of suitable local competencies.
    Keywords: Product relatedness, Firm heterogeneity, Product Innovation
    JEL: D22 O53 O12
    Date: 2015–05
  2. By: Marin, Dalia; Schymik, Jan; Tarasov, Alexander
    Abstract: We incorporate trade in tasks à la Grossman and Rossi-Hansberg (2008) into a small open economy version of the theory of firm organization of Marin and Verdier (2012) to examine how offshoring affects the way firms organize. We show that the offshoring of production tasks leads firms to reorganize with a more decentralized management, improving the competitiveness of the offshoring firms. We show further that the offshoring of managerial tasks relaxes the constraint on managers but toughens competition, and thus has an ambiguous impact on the level of decentralized management and CEO wages of the offshoring firms. In sufficiently open economies, however, managerial offshoring unambiguously leads to more decentralized management and to larger CEO wages. We test the predictions of the model based on original firm level data we designed and collected of 660 Austrian and German multinational firms with 2200 subsidiaries in Eastern Europe. We find that offshoring firms are 33.4% more decentralized than non-offshoring firms. We find further that the average fraction of managers offshored reduces the level of decentralized management by 3.1%, but increases the level of decentralized management by 4% in industries with a level of openness above the 25th percentile of the openness distribution. Lastly, we find that one additional offshored manager lowers CEO wages relative to workers by 4.9%.
    Keywords: CEO pay; international trade with endogenous organizations; multinational firms; the rise of human capital; theory of the firm
    JEL: D23 F12 F14 L22
    Date: 2015–05
  3. By: Berthou, Antoine; Dhyne, Emmanuel; Bugamelli, Matteo; Cazacu, Ana-Maria; Demian, Calin-Vlad; Harasztosi, Péter; Lalinsky, Tibor; Meriküll, Jaanika; Oropallo, Filippo; Soares, Ana Cristina
    Abstract: This paper provides a new cross-country evaluation of competitiveness, focusing on the linkages between productivity and export performance among European economies. We use the information compiled in the Trade module of CompNet to establish new stylized facts regarding the joint distributions of the firm-level exports performance and productivity in a panel of 15 countries, 23 manufacturing sectors during the 2000’s. We confirm that exporters are more productive than non-exporters. However, this productivity premium is rising with the export experience of firms, with permanent exporters being much more productive than starters. At the intensive margin, we show that both the level and the growth of firm-level exports rise with firm productivity, and that the bulk of aggregate exports in each country are made by a small number of highly productive firms. Finally, we show that during the crisis, the growth of exports by high productive firms sustained the current account adjustment of European “stressed” economies. This last result confirms that the shape of the productivity distribution within each country can have important consequences from the point of view of the dynamics of aggregate trade patterns. JEL Classification: F10, F14
    Keywords: firm heterogeneity, firm-level exports, productivity
    Date: 2015–05
  4. By: Huu Thanh Tam Nguyen (EPEE - Centre d'Etudes des Politiques Economiques - Université d'Evry-Val d'Essonne); Ngoc-Sang Pham (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: We consider a small open economy with two productive sectors (an old and a new). There are two types of firms in the new industry: a well planted multinational firm and a potential domestic firm. Our framework highlights a number of results. First, in a poor country with low return of training and weak FDI spillovers, the domestic firm does not exist in the new industry requiring a high fixed cost. Second, once the host economy has the capacity to create the new firm, the productivity of the domestic firm is the key factor allowing it to enter into the new industry, and even eliminate the multinational firm. Interestingly, in some cases where FDI spillovers are strong, the country should invest in the new industry, but not train specific workers. Last, credit constraints and labor/capital shares play important roles in the competition between the multinational firm and the domestic one.
    Date: 2014–10
  5. By: Natasa Stojkoviæ-Krstiæ (Banka Poštanska štedionica, a.d., Beograd)
    Abstract: The integrating business performance measurement system in the enterprise has the important role of development and guidance, giving the basis for formulating and guiding the corporate strategy. Relevance of the integrating business performance measurement system, that is, application of the performance measurement process at the different levels of activities and business dimensions includes the motivation role, since it stimulates higher objectives realization. The integrating business performance measurement system seems to be the basis for creating compensation system for managers and other employees. Relevance of the cited functions of integrating business performance measurement system requires the need for higher management initiation, considering its designing, implementation, and continual development and improvement.
    Keywords: measurement, performance, organization
    JEL: M11 M21 O31
    Date: 2014–10
  6. By: Shintaku, Koji
    Abstract: We theoretically investigates that how firms decide to exports and the extent of the division of labor under heterogeneous fixed export costs. In the equilibrium, exporters and non-exporters coexists and all exporters behave as borderline firms. Exporters promote the division of labor more strongly than non-exporters. A decrease in trade costs raises the cut off export fixed costs. It expands firm size and promotes the division of labor of exporters, while it shrinks firm size and make non-exporters refrain from the division of labor. These links between the cut off fixed export costs and the division of labor of exporters and non-exporters bring a new insight for the research line of trade and heterogeneous fixed export costs
    Keywords: heterogeneous fixed export costs; division of labor within firms; export decision
    JEL: F1 F12
    Date: 2015–03–20
  7. By: Claudio Ferraz; Frederico Finan; Dimitri Szerman
    Abstract: This paper tests whether demand shocks affect firm dynamics. We examine whether firms that win government procurement contracts grow more compared to firms that compete for these contracts but do not win. We assemble a comprehensive data set combining matched employer-employee data for the universe of formal firms in Brazil with the universe of federal government procurement contracts over the period of 2004 to 2010. Exploiting a quasi-experimental design, we find that winning at least one contract in a given quarter increases firm growth by 2.2 percentage points over that quarter, with 93% of the new hires coming from either unemployment or the informal sector. These effects also persist well beyond the length of the contracts. Part of this persistence comes from firms participating and wining more future auctions, as well as penetrating other markets.
    JEL: F14 J21 O0
    Date: 2015–05
  8. By: Nicholas Bloom; Fatih Guvenen; David J. Price; Jae Song
    Abstract: Earnings inequality in the United States has increased rapidly over the last three decades, but little is known about the role of firms in this trend. For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers working for the same employer—men vs. women, young vs. old, new hires vs. senior employees, and so on? To address questions like these, we begin by constructing a matched employer-employee data set for the United States using administrative records. Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.
    Keywords: Inequality, productivity and firms
    JEL: O2 M1
    Date: 2015–05
  9. By: Gianmarco I. P. Ottaviano; Giovanni Peri; Greg C. Wright
    Abstract: This paper explores the impact of immigrants on the imports, exports and productivity of service-producing firms in the U.K. Immigrants may substitute for imported intermediate inputs (offshore production) and they may impact the productivity of the firm as well as its export behavior. The first effect can be understood as the re-assignment of offshore productive tasks to immigrant workers. The second can be seen as a productivity or cost cutting effect due to immigration, and the third as the effect of immigrants on specific bilateral trade costs. We test the predictions of our model using differences in immigrant inflows across U.K. labor markets, instrumented with an enclave-based instrument that distinguishes between aggregate and bilateral immigration, as well as immigrant diversity. We find that immigrants increase overall productivity in service-producing firms, revealing a cost cutting impact on these firms. Immigrants also reduce the extent of country-specific offshoring, consistent with a reallocation of tasks and, finally, they increase country-specific exports, implying an important role in reducing communication and trade costs for services.
    Keywords: Immigration, services trade
    JEL: F16 F10 F22 F23
    Date: 2015–05
  10. By: Lisa Anouliès (Université Paris-Sud, RITM)
    Abstract: Cap-and-trade programs are presently the cornerstone of climate change policies and proposals in many countries. I investigate the economic and environmental effects of different designs for this policy in a general equilibrium setting when firms are heterogeneous and in monopolistic competition. This study first predicts that the cap on emissions perfectly defines the environmental quality but has no effect on firms’ profits and decisions to enter or exit the market. On the contrary, increasing the share of free allocation of emissions allowances reallocates resources among firms toward the most productive ones: the initial allocation of allowances therefore impacts firms’ entry and exit decisions and aggregate economic variables but not the environment. Firm heterogeneity magnifies this economic effect of a change in the initial allocation of allowances.
    Keywords: Emissions trading, Heterogeneous firms, Monopolistic competition
    JEL: Q58 D43 H23
    Date: 2015–05
  11. By: Lawless, Martina; McCoy, Daire; Morgenroth, Edgar; O'Toole, Conor
    Abstract: The corporate tax rate and regime are policy instruments that are the subject of considerable attention for the role they play in attracting foreign multinationals making location decisions across countries. This paper examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an eight year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We find that accounting for this non-linearity improves the performance of the model for all of the alternative measures of the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors.
    Keywords: Corporation Tax, Location Choice, Multinational firms, FDI
    JEL: C25 F23 H25
    Date: 2015–06–03
  12. By: Anders Bornhal (HUI Research AB, SE-103 29 Stockholm, Sweden; Department of Economics, Dalarna University, SE-781 88 Borlange, Sweden; And school of Business, Orebro University, SE-701 82 Orebro Sweden.); Sven-Olov Daunfeldt (HUI Research AB, SE-103 29 Stockholm, Sweden; Department of Economics, Dalarna University, SE-781 88 Borlange, Sweden;); Niklas Rudholm (HUI Research AB, SE-103 29 Stockholm, Sweden; Department of Economics, Dalarna University, SE-781 88 Borlange, Sweden;)
    Abstract: A natural experiment is used to identify the causal relationship be- tween employment protection legislation and Örm growth in Sweden. A reform of the last-in-Örst-out principle increased employment growth with over 4,000 additional jobs per year in Örms with less than eleven employees. Firms with ten employees became 3.4 percentage points less likely to increase their workforce, indicating that an introduced threshold kept them from growing. Thus, employment protection leg- islation seems to act as a growth barrier for small Örms.
    Keywords: Firm growth; growth barriers; employment protection
    Date: 2015–05
  13. By: Brice Corgnet (Chapman University, Economic Science Institute); Ludivine Martin (Luxembourg Institute of Socio-Economic Research); Peguy Ndodjang (Luxembourg Institute of Socio-Economic Research); Angela Sutan (ESC Dijon, LESSAC)
    Abstract: Influence costs models predict that organizations should limit managerial discretion to deter organizational members from engaging in wasteful politicking activities. We test this conjecture in a controlled, yet realistic, work environment in which we allow employees to influence managers’ decisions about rewards. We find that influence activities are pervasive and significantly lower organizational performance. Organizational performance suffers because principals offer weaker incentives when influence activities are allowed than when they are not. Importantly, we show that equal pay incentive schemes perform better when influence activities are available than when they are not. Our results thus support the idea that prevalent politicking activities may account for the widespread use of bureaucratic, and apparently inefficient, compensation rules in organizations.
    Keywords: Influence activities, incentive theory, theory of the firm, organizational economics
    JEL: C91 D23 D86 M52
    Date: 2015
  14. By: Masini, Andrea; Bacchetti , Andrea; Perona, Marco; Zanardini, Massimo
    Abstract: This paper examines the relationship among IT capability, operations strategy decisions and operational performance. Using primary data from a sample of European firms, the authors test a model of fit between two specific IT capability-building decisions and three competitive priorities, and they analyze the impact of IT capability alignment on several dimensions of process performance. After uncovering three stylized configurations, they note that firms tend to adopt internally coherent IT capability-building decisions but they find only mixed evidence of alignment between IT capability-building decisions and competitive priorities. Interestingly, however, failing to achieve alignment has negative performance consequences but only for firms that develop limited IT capability. Their results suggests that IT plays a central role in the fulfillment of a firm’s operations strategy, not only for firms that pursue differentiation and are interested in improving the effectiveness of their customer-oriented functions, but also for firms seeking efficiency improvements in back-office operations. Although it is, a priori, more expensive, the development of advanced IT capability can support cost leadership strategies more effectively than a frugal approach, as long as IT projects are used to generate operational knowledge and thus improve process efficiency. At the same time, their results cast further doubt on the value of frugal IT capability, even for firms that strive to reduce cost.
    Keywords: Operations strategy; IT capability; process performance; configurations; empirical analysis
    Date: 2015–01–26

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