nep-bec New Economics Papers
on Business Economics
Issue of 2015‒06‒20
sixteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Firms and Skills: The Evolution of Worker Sorting By Håkanson, Christina; Lindqvist, Erik; Vlachos, Jonas
  2. Reciprocity in Organisations By Englmaier, Florian; Kolaska, Thomas; Leider, Stephen
  3. Firm Reputation and Cost of Debt Capital By Anginer, Deniz; Mansi, Sattar; Warburton, A. Joseph; Yildizhan, Celim
  4. Leverage and Productivity By Huiyu Li
  5. Rule Versus Discretion: Regulatory Uncertainty, Firm Investment, and the Ally Principle By Montagnes, B, Pablo; Wolton, Stephane
  6. Assessment of the environmental performance of European countries over time: Addressing the role of carbon leakage and nuclear waste By Grebel, Thomas; Stützer, Michael
  7. Multinational Firms and International Business Cycle Transmission By Javier Cravino; Andrei A. Levchenko
  8. Identifying High Growth Firms in India: An Alternative Approach By Aradhna Aggarwal; Takahiro Sato
  9. Determinants of R&D intensity and its impact on firm value in an innovative economy in which family business groups are dominant: The case of South Korea By Byung S. Min; Russell Smyth
  10. Trade Intermediation, Financial Frictions, and the Gains from Trade By Jackie M.L. Chan
  11. Minimum quality standards and exports By Birg, Laura; Voßwinkel, Jan S.
  12. Sorting Within and Across French Production Hierarchies By Grigorios Spanos
  13. Is There Job Polarization at the Firm Level? By Petri Böckerman; Seppo Laaksonen; Jari Vainiomäki
  14. Inverted-U relationship between innovation and survival: Evidence from firm-level UK data By Guidi, Francesco; Solomon, Edna; Trushin, Eshref; Ugur, Mehmet
  15. Two-Sided Matching via Balanced Exchange: Tuition and Worker Exchanges By Umut Mert Dur; M. Utku Unver
  16. Choice of foreign R&D entry mode and impact on firm performance: A firm-level analysis for Switzerland and Austria By Hollenstein, Heinz; Berger, Martin

  1. By: Håkanson, Christina (Sveriges Riksbank); Lindqvist, Erik (Stockholm School of Economics); Vlachos, Jonas (Department of Economics,)
    Abstract: We document a significant increase in the sorting of workers by cognitive and non-cognitive skills across Swedish firms between 1986 and 2008. The weight of the evidence suggests that the increase in sorting is due to stronger complementarities between worker skills and technology. In particular, a large fraction of the increase can be explained by the expansion of the ICT sector and a reallocation of engineers across firms. We also find evidence of increasing assortative matching, in the sense that workers who are particularly skilled in their respective educational groups are more likely to work in the same firms. Changes in sorting patterns and skill gradients can account for a about half of the increase in between-firm wage dispersion.
    Keywords: Skill sorting; Skilled-biased technological change; Outsourcing; Globalization; Cognitive skills; Non-cognitive skills; Personality; Employer-employee matched data
    JEL: J24 J62 L21 O33
    Date: 2015–06–04
  2. By: Englmaier, Florian; Kolaska, Thomas; Leider, Stephen
    Abstract: Recent laboratory evidence suggests that personality traits, in particular social preferences, may affect contractual outcomes under moral hazard. Using the British Workplace Employment Relations Survey 2004 we find that behaviour of employers and employees is consistent with the presence of gift-exchange motives: firms that screen applicants for personality are less likely to pay low wages and more likely to provide (non-pecuniary) benefits. Firms likewise benefit from employee screening as they can implement more team-working and are generally more successful. Other human resource management practices only poorly predict these patterns. Moreover, there is no association between dismissals and personality tests, indicating that personality tests do not merely improve the fit between applicant and employer. Hence, we conclude that motivation based on gift-exchange motives is a plausible explanation for our results.
    Keywords: Reciprocity; Organisational Structure; Employee Compensation
    JEL: D22 M52
    Date: 2015–03–17
  3. By: Anginer, Deniz; Mansi, Sattar; Warburton, A. Joseph; Yildizhan, Celim
    Abstract: We examine the relation between firm reputation and the cost of debt financing. We posit that corporate reputation represents “soft information” not captured by balance sheet variables, which is nonetheless valuable to lenders. Using Fortune magazine’s survey of company reputation, we find an inverse relation between a company’s reputation and its bond credit spreads. We also find that firms with high reputation face less stringent covenants and are less likely to be the target of SEC fraud investigations. Further testing shows that bad reputation is a good ex ante predictor of corporate failure. Our study provides evidence that firm reputation is an important consideration in the pricing of corporate public debt.
    Keywords: Cost of debt and firm reputation, cost of capital and firm reputation, credit risk and firm reputation, cost of debt and firm intangibles, covenant restrictions and firm reputation, fraud and firm reputation, bankruptcy risk and firm reputation
    JEL: D82 G11 G12 G14 G32 G33 L14 M4
    Date: 2011–06–29
  4. By: Huiyu Li (Stanford University)
    Abstract: Financial frictions can reduce aggregate productivity, in particular when firms with high productivity cannot borrow against their profits. This paper investigates the quantitative importance of this form of borrowing constraint using a large panel of firms in Japan. The firms are young and unlisted, precisely the firms for which credit frictions are expected to be the most severe. In this data, I find that firm leverage (asset-to-equity ratio) and firm output-to-capital ratios rise with firm productivity, both over time in a firm and across firms of the same age and cohort. I use these facts in indirect inference to estimate a standard general equilibrium model where financial frictions arise from the limited pledgeability of profits and capital. In this model more financially constrained firms have higher output-to- capital ratios. The model matches the two facts the best when firms can pledge half of their one-year-ahead profits and one-fifth of their assets. Compared to the common assumption that firms can pledge only assets, aggregate productivity loss due to financing frictions is one-third smaller when profits are also pledgeable to the degree seen in Japan.
    Date: 2015–06
  5. By: Montagnes, B, Pablo; Wolton, Stephane
    Abstract: Previous studies of the bureaucracy have focused on the internal relationship between politicians (principals) and bureaucrats (agents). External regulated actors, such as firms, have generally been ignored. But firms strategically respond to their regulatory environment and regulatory uncertainty can deter investment. We examine how concerns about firms' strategic behavior affect the optimal internal organization of the bureaucracy. When regulatory uncertainty is about how much firms will be regulated, the ally principle applies: the principal delegates to an agent with similar preferences as hers. When regulatory uncertainty is about whether firms will be regulated, the ally principle fails to hold: the principal prefers an inefficient rule-based regulatory framework or, if possible, to delegate to an agent with preferences distinct from hers to encourage firm investment. We uncover novel endogenous limits to delegation since the principal faces a commitment problem not to replace a biased agent after the firm investment.
    Keywords: Regulatory Uncertainty, Ally Principle, Firm Investment
    JEL: D70 D73 D78
    Date: 2015–06–09
  6. By: Grebel, Thomas; Stützer, Michael
    Date: 2014
  7. By: Javier Cravino (University of Michigan and NBER); Andrei A. Levchenko (University of Michigan, NBER, and CEPR)
    Abstract: We investigate how multinational firms contribute to the transmission of shocks across countries using a large firm-level dataset that contains ownership information for 8 million firms in 34 countries. We use these data to document two novel empirical patterns. First, foreign affiliate and headquarter sales exhibit strong positive comovement: a 10% growth in the sales of the headquarter is associated with a 2% growth in the sales of the affiliate. Second, shocks to the source country account for a significant fraction of the variation in sales growth at the source-destination level. We propose a parsimonious quantitative model to interpret these findings and to evaluate the role of multinational firms for international business cycle transmission. For the typical country, the impact of foreign shocks transmitted by all foreign multinationals combined is non-negligible, accounting for about 10% of aggregate productivity shocks. On the other hand, since bilateral multinational production shares are small, interdependence between most individual country pairs is minimal. Our results do reveal substantial heterogeneity in the strength of this mechanism, with the most integrated countries significantly more affected by foreign shocks.
    Keywords: international business cycle comovement, multinational firms
    JEL: F23 F44
  8. By: Aradhna Aggarwal (Indian Studies at Asia Research Center, Department of International Economics and Management at Copenhagen Business School); Takahiro Sato (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: Over the past two decades, considerable interest has grown in high growth firms (HGFs). However, the concept of HGFs still remains controversial. One of the most controversial issues is size and age of these firms. The present study argues that the current literature on HGFs may offer little help in addressing this issue given the constantly changing population of HGFs. This study uses an alternative conceptual framework and proposes a concept of ‘High Impact Group of Firms’ (HIGF). It explains the HIGFs in the framework of a new stream of literature that focuses on business dynamics, productivity growth and industry evolution, formulates testable hypotheses, and uses a novel methodology to identify it. The empirical analysis is based on the plant level panel data of 22 manufacturing industries in Indian manufacturing during the period 2000-01 to 2005-06. Our empirical results reveal that much depends on the industry/sector specific characteristics.
    JEL: L25 L26 O14 O33 O53
    Date: 2015–03
  9. By: Byung S. Min; Russell Smyth
    Abstract: We examine both the determinants of corporate research and development (R&D) intensity, and its impact on firm value, in Korea, a country in which family business groups are dominant and in which corporate-funded R&D intensity is one of the highest in the world. We find that growth opportunities, size of the firm and payment to executive board members have a positive effect on R&D intensity, while leverage has a negative effect on R&D intensity. When leverage is at an extremely high level, the relationship between growth opportunities and R&D intensity turns from positive to negative. The positive effect of firm size on R&D intensity is larger, the greater the number of subsidiaries the firm has, consistent with the firm engaging in cross-subsidisation. The positive effect of payments to executive board members on R&D intensity is smaller for chaebol affiliates than for stand-alone firms. Using instrument variables we find that R&D generates an increase in firm value.
    Keywords: family business; R&D; innovative economy; firm value; chaebol
    Date: 2015–04
  10. By: Jackie M.L. Chan (Stanford University)
    Abstract: This paper develops a heterogeneous firm model of international trade with trade intermediation and financial frictions. Indirect exporting through intermediaries entails lower fixed costs but larger variable costs, and thus intermediaries alleviate financial frictions which magnify the fixed cost of exporting. The model finds strong empirical support in firm-level data on indirect exports for 118 countries as well as country-level data on entrepôt trade through Hong Kong for over 50 countries. Financially more constrained exporting firms and financially less developed countries are more likely to use trade intermediaries. Both of these effects are stronger in financially more vulnerable industries. Calibrating a two-country version of the model in general equilibrium for China and US reveals important gains from trade intermediation. When indirect exporting is eliminated from China, welfare, exports, and the share of exporting firms fall by 0.24%, 18%, and 59% respectively.
    Keywords: intermediaries, indirect exports, financial constraints, gains from trade, Hong Kong.
    JEL: F10 F14 F36 G20
    Date: 2015–06
  11. By: Birg, Laura; Voßwinkel, Jan S.
    Abstract: This paper studies the interaction of a minimum quality standard and exports in a vertical product differentiation model when firms sell global products. If exante quality of foreign firms is lower (higher) than the quality of exporting firms, a mild minimum quality standard in the home market hinders (supports) exports. The minimum quality standard increases quality in both markets. A welfare maximizing minimum quality standard is always lower under trade than under autarky. A Minimum quality standard reduces profits for the exporting firm. It increases domestic welfare, but reduces welfare in the export market.
    Keywords: minimum quality standard,vertical differentiation,exports
    JEL: F12 L13 L50
    Date: 2015
  12. By: Grigorios Spanos (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: The objective of this paper is to examine the assignment of workers to layers and firms. In particular, I use an administrative dataset of French workers to study the organization of firms. First, I test whether higher ability workers are employed in the higher layers of firms. Second, I test whether there is positive assortative matching between workers in the different layers of firms. Third, I test whether higher ability workers allow their managers to increase their span of control and employ larger teams. To do this, I first classify employees as residing in different organizational layers such as production and administrative workers, supervisors, senior managers, and owners and CEOs, using occupational codes. From a panel wage regression I then obtain estimates of workers’ ability as in Abowd et al. (1999). I then study how workers sort into layers and across layers with other workers. I emphasize three results. First, higher ability workers are employed in the higher layers of firms. Second, I find evidence of positive assortative matching between workers in the different layers of firms. Third, I find different mechanisms are behind the sorting pattern observed in the data. I find evidence that higher ability workers limit their managers’ span of control, and I also find weak evidence that higher ability workers allow their managers to increase their span of control and employ larger teams.
    Keywords: positive assortative matching, firm organization, matched employer-employee data, high-dimensional fixed effects
    Date: 2015–06–15
  13. By: Petri Böckerman (Labour Institute for Economic Research); Seppo Laaksonen (University of Helsinki); Jari Vainiomäki (School of Management, University of Tampere)
    Abstract: We perform decompositions and regression analyses that test for the routinization hypothesis and job polarization at the firm level, instead of the aggregate or industry level as in previous studies. Furthermore, we examine the technology-based explanations for routinization and job polarization at the firm level using firm-level R&D as an explanatory variable in the regressions. Our results for the intermediate education group and the routine occupation group are consistent with polarization at the firm level, i.e. disappearing middle due to technological change. These results are robust for accounting for dynamic selection effects.
    Date: 2013–10
  14. By: Guidi, Francesco; Solomon, Edna; Trushin, Eshref; Ugur, Mehmet
    Abstract: Theoretical and empirical work on innovation and firm survival has produced varied and often conflicting findings. In this paper, we draw on Schumpeterian models of competition and innovation and stochastic models of firm dynamics to demonstrate that the conflicting findings may be due to linear specifications of the innovation-survival relationship. We demonstrate that a quadratic specification is appropriate theoretically and fits the data well. Our findings from an unbalanced panel of 39,705 UK firms from 1997-2012 indicate that an inverted-U relationship holds for different types of R&D expenditures and sources of funding. We also report that R&D intensity is more likely to increase survival when firms are in more concentrated industries and in Pavitt technology classes consisting of specialized suppliers of technology and scale-intensive industries. Finally, we report that the effects of firm and industry characteristics as well as macroeconomic environment indicators are all consistent with prior findings. The results are robust to step-wise modeling, controlling for left truncation and use of lagged values to address potential simultaneity bias.
    Keywords: innovation,R&D,firm dynamics,survival anaysis
    JEL: C41 D21 D22 L1 O3
    Date: 2015–06–15
  15. By: Umut Mert Dur (Department of Economics, North Carolina State University); M. Utku Unver (Department of Economics, Boston College)
    Abstract: We introduce a new matching model to mimic two-sided exchange programs such as tuition and worker exchange, in which each firm has to avoid being a net-exporter of workers. These exchanges use decentralized markets, making it difficult to achieve a balance between exports and imports. We show that stable equilibria discourage net-exporting firms from exchange. We introduce the two-sided top-trading-cycles mechanism that is balanced-efficient, worker-strategy-proof, acceptable, and individually rational, and respects priority bylaws regarding worker eligibility. We prove that it is the unique mechanism fulfilling these objectives. Moreover, it encourages exchange, since full participation is the dominant strategy for firms.
    Keywords: Market Design, Matching Theory, Tuition Exchange, Worker Exchange, Balanced Exchange, Two–sided Matching, Two–sided Top Trading Cycles.
    JEL: C71 C78 D71 D78
    Date: 2015–06
  16. By: Hollenstein, Heinz; Berger, Martin
    Abstract: The study seeks to identify the determinants of a firm's foreign entry mode choice and the impact of mode selection on firm performance for the specific case of R&D - a topic so far not investigated in entry mode research. Separate estimates of a Heckman selection model for Austria and Switzerland, based on comparable firm-level data and variable specification, show for both countries that the OLI model is well-suited to explain not only the propensity to investing abroad in R&D but also the respective choice between equity-based and non-equity governance modes. Moreover, it turns out, but only for Swiss companies, that foreign R&D raises (domestic) firm performance with a larger impact in case of equity-based governance. The differences between the two countries primarily reflect the much higher degree of R&D internationalisation of Switzerland.
    Keywords: internationalisation of R&D,foreign R&D entry mode choice,international R&D cooperation
    JEL: F23 L24 O32
    Date: 2015

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