nep-bec New Economics Papers
on Business Economics
Issue of 2015‒08‒13
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Diversity of Personnel Practices and Firm Performance By Pedro S. Martins
  2. Innovation and internationalization. Evidence for Poland from a firm-level survey By Tomasz Brodzicki
  3. Globalization and Diversification Strategy: A Managerial Perspective By Harry P. Bowen; H. Kent Baker; Gary E. Powell
  4. Business Dynamics of Innovating Firms: Linking U.S. Patents with Administrative Data on Workers and Firms By Stuart Graham; Cheryl Grim; Tariqul Islam; Alan Marco; Javier Miranda
  5. Integrating profitability prospects and cash management By Décamps, Jean-Paul; Villeneuve, Stéphane
  6. Matching skills of individuals and firms along the career path By Bublitz, Elisabeth
  7. Do Female Executives Make a Difference? The Impact of Female Leadership on Gender Gaps and Firm Performance By Mario Macis; Fabiano Schivardi; Andrea Moro; Luca Flabbi
  8. Production Networks, Geography and Firm Performance By Yukiko Saito; Andreas Moxnes; Andrew Bernard
  9. Demonstrations and Price Competition in New Product Release By Raphael Boleslavsky; Christopher Cotton; Haresh Gurnani
  10. Management Earnings Forecasts as a Performance Target in Executive Compensation Contracts By Shota Otomasa; Atsushi Shiiba; Akinobu Shuto
  11. Micro-Evidence on Product and Labor Market Regime Differences between Chile and France By Sabien Dobbelaere; Rodolfo Lauterbach; Jacques Mairesse
  12. Earnings and Employment in Foreign-owned Firms By David C Mare; Lynda Sanderson; Richard Fabling
  13. Worker problem-solving and the nature of the firm: new theory, new evidence By Dorman, Peter; Nolte, Heike
  14. Patents and the Success of Venture-Capital Backed Startups: Using Examiner Assignment to Estimate Causal Effects By Patrick Gaule
  15. Performance Measurement and Incentive Intensity By Bayo-Moriones, Alberto; Galdon-Sanchez, Jose Enrique; Martinez-de-Morentin, Sara
  16. Global Financial Crisis, Ownership Change, and Corporate Governance Evolution: Firm-Level Evidence from Russia By Iwasaki, Ichiro
  17. Schumpeterian business cycles By Filip Rozsypal

  1. By: Pedro S. Martins
    Abstract: Personnel economics tends be based on single-firm case studies. Here we examine the personnel practices of nearly 5,000 firms, over a period of 20 years, using detailed matched employer-employee panel data from Portugal. In the spirit of Baker et al (1994a, b), we consider different dimensions of personnel management within each firm: worker turnover, the role of job levels and human capital as wage determinants, the dispersion of wages within job levels, the importance of tenure in terms of promotions and exits, and the scope for careers. We find a large degree of diversity in most of these practices across firms. Moreover, some personnel practices are shown to be robust predictors of higher levels of firm performance, even after controlling for time-invariant firm heterogeneity and other variables: low wage dispersion at low and intermediate job levels and a tight relationship between human capital variables and wages.
    Keywords: Personnel Economics, Job Levels, Wages, Big Data
    JEL: M51 M52 J31
    Date: 2015–08
  2. By: Tomasz Brodzicki (University of Gdansk, Faculty of Economics; Institute for Development)
    Abstract: Several important studies find that innovation and exporting are inextricably linked at firm-level. Aw et al. (2011) find that the marginal benefit of simultaneous exporting and innovating increases with productivity, with self-selection effect typical for heterogeneous firm literature a la Melitz (2003) driving a large part of the observed complementarity. Altomonte et al. (2013) show that there is a positive, broad, strong and robust correlation between the extent of internationalization of firms and innovation activities in the panel of European manufacturing firms (EFIGE dataset). Apart form several recent studies the literature on the role of firm heterogeneity in Polish trade and the nexus with innovation performance is in its infancy. The goal of this article is to present some initial results of a large survey of Polish exporting and non-exporting firms conducted by the team of the Institute for Development aimed at filling this important gap.
    Keywords: internationalization, innovation activity, firms survey
    JEL: F12 F14 C83
    Date: 2015–08
  3. By: Harry P. Bowen (McColl School of Business, Queens University of Charlotte); H. Kent Baker (Kogod School of Business, American University); Gary E. Powell (McColl School of Business, Queens University of Charlotte)
    Abstract: This study presents survey evidence about managerial views on how the processes of globalization affect managers’ strategic decisions regarding a firm’s international and product market scope. Our purpose is to assess whether managerial behaviors are consistent with theoretical predictions and whether managerial decisions about firm scope are consistent with the findings of recent empirical research. Our findings generally support those of academic research on the impacts of globalization on managerial decisions concerning firms’ strategic scope, but raise questions about findings to date on the nature of a relationship between product and international diversification and their impact on firm performance. Our findings serve as a check on the results of extant research and offer guidance for future research.
    Date: 2014
  4. By: Stuart Graham; Cheryl Grim; Tariqul Islam; Alan Marco; Javier Miranda
    Abstract: This paper discusses the construction of a new longitudinal database tracking inventors and patent-owning firms over time. We match granted patents between 2000 and 2011 to administrative databases of firms and workers housed at the U.S. Census Bureau. We use inventor information in addition to the patent assignee firm name to and improve on previous efforts linking patents to firms. The triangulated database allows us to maximize match rates and provide validation for a large fraction of matches. In this paper, we describe the construction of the database and explore basic features of the data. We find patenting firms, particularly young patenting firms, disproportionally contribute jobs to the U.S. economy. We find patenting is a relatively rare event among small firms but that most patenting firms are nevertheless small, and that patenting is not as rare an event for the youngest firms compared to the oldest firms. While manufacturing firms are more likely to patent than firms in other sectors, we find most patenting firms are in the services and wholesale sectors. These new data are a product of collaboration within the U.S. Department of Commerce, between the U.S. Census Bureau and the U.S. Patent and Trademark Office.
    Date: 2015–07
  5. 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
  6. By: Bublitz, Elisabeth
    Abstract: Research since Gary Becker equated specific human capital with firm-specific human capital. This paper divides firm human capital into a specific and a general component to investigate the relationships between firm- and occupation-specific human capital and job switches. Applying the task-based approach, the results show that the degree to which firm knowledge is portable depends on tasks similarities between the firms. In the case of switches, less experienced workers travel longer tasks distances between firms than more experienced workers. Firm- and occupation-specific knowledge are negatively related to wages in a new job but achieving a good occupational, instead of firm, match is most important for employees. The amount of specific knowledge on the firm level, called occupational intensity, decreases with experience and leads to higher wages for higher qualification levels. In addition, the positive effect of occupational intensity on wages can outweigh the negative consequences of covering long tasks distances.
    Keywords: skill-weights,task-based approach,specific human capital,labor mobility
    JEL: J24 J62
    Date: 2015
  7. By: Mario Macis (Johns Hopkins University); Fabiano Schivardi (Bocconi University); Andrea Moro (Vanderbilt University and Universita  Ca' Foscari di Venezia); Luca Flabbi (IDB)
    Abstract: We analyze a matched employer-employee panel data set and find that female leadership has a positive effect on female wages at the top of the distribution, and a negative one at the bottom. Moreover, performance in firms with female leadership increases with the share of female workers. This evidence is consistent with a model where female executives are better equipped at interpreting signals of productivity from female workers. This suggests substantial costs of under-representation of women at the top: for example, if women became CEOs of firms with at least 20% female employment, sales per worker would increase 6.7%.
    Date: 2015
  8. By: Yukiko Saito (RIEITI); Andreas Moxnes (Dartmouth College); Andrew Bernard (Dartmouth College)
    Abstract: This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Firms located in close proximity to other markets, and firms that face low search costs, will search more and find better suppliers. This in turn drives down the firm's marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms' buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.
    Date: 2015
  9. By: Raphael Boleslavsky (University of Miami); Christopher Cotton (Queen's University); Haresh Gurnani (Wake Forest University)
    Abstract: We incorporate product demonstrations into a game theoretic model of firm price competition. Demonstrations may include product samples, trials, return policies, reviews, or any other means by which a firm allows consumers to learn about their value for a new product. In our model, demonstrations help individual consumers learn whether they prefer an innovation over an established product. The innovative firm controls demonstration informativeness. When prices can respond to demonstration policies, the firm prefers to provide maximumly informative demonstrations, which optimally segment the market, dampen subsequent price competition, and maximize profits. In contrast, when prices are less flexible, the firm prefers only partially informative demonstrations, designed to maximize its market share at prevailing prices. Such a strategy can generate the monopoly profit for the innovative firm. We contrast the strategic role of demonstrations in our framework with the strategic role of capacity limits in models of judo economics (e.g. Gelman and Salop 1983), which also allow firms to divide a market and reduce competition.
    Keywords: judo economics, demonstrations, product trials, product samples, return policies, money back guarantees, marketing strategy, product differentiation
    JEL: L13 L15 D83
    Date: 2015–07
  10. By: Shota Otomasa (Kansai University); Atsushi Shiiba (Osaka University); Akinobu Shuto (The University of Tokyo)
    Abstract: This paper investigates whether and how Japanese firms use management earnings forecasts as a performance target for determining executive cash compensation. Consistent with the implications of the principal?agent theory, we find that the sensitivity of executive cash compensation varies with the extent to which realized earnings exceed initial management forecasts. In particular, we find that, for a sample of Japanese firms comprising 14,899 firm-year observations from 2005 to 2012, the executive cash compensation is positively related to management forecast error (MFE). Moreover, we show that the relationship between executive cash compensation and MFE strengthens when realizing positive MFEs despite aggressive initial forecasts. Overall, we find that initial management forecasts can be used as a performance target in executive compensation contracts. These findings also suggest that management earnings forecasts are important for improving contract efficiency as well as for providing useful information to investors in the capital market.
    Date: 2015–07
  11. By: Sabien Dobbelaere; Rodolfo Lauterbach; Jacques Mairesse
    Abstract: Institutions, social norms and the nature of industrial relations vary greatly between Latin American and Western European countries. Such institutional and organizational differences might shape firms operational environment in general and the type of competition in product and labor markets in particular. Contributing to the literature on estimating simultaneously product and labor market imperfections, this paper quantifies industry differences in both types of imperfections using firm-level data in Chile, a non-OECD member under the considered time period, and France. We rely on two extensions of Hall’s econometric framework for estimating price-cost margins by nesting three labor market settings (perfect competition or right-to-manage bargaining, efficient bargaining and monopsony). Using an unbalanced panel of 1,737 firms over the period 1996-2003 in Chile containing unique data on firm-level output price indices and 14,270 firms over the period 1994-2001 in France, we first classify 20 comparable manufacturing industries in 6 distinct regimes that differ in the type of competition prevailing in product and labor markets. We then investigate industry differences in the estimated product and labor market imperfections. Consistent with differences in institutions and in the industrial relations system in the two countries, we find important regime differences across the two countries. In addition, we observe cross-country differences in the levels of product and labor market imperfections within regimes.
    JEL: C23 D21 J51 L13
    Date: 2015–07
  12. By: David C Mare; Lynda Sanderson; Richard Fabling (The Treasury)
    Abstract: This paper examines remuneration and labour mobility patterns among workers in foreign-owned firms operating in New Zealand. By tracking workers as they move across jobs in different types of firms, we document the extent of the “foreign wage premium” distinguishing between compositional factors (eg, differences in industry and employment composition across foreign and domestic firms) and remaining differences in wage levels and growth rates. We find that much of the average earnings gap between foreign- and domestically-owned firms is due to compositional factors – foreign firms tend to be larger and employ workers who would have received relatively high wages regardless of where they worked. However, even among apparently similar workers and firms, we find a two to four percent earnings gap between workers in domestic and foreign-owned firms. This gap is primarily associated with a wage increase of around two percent on moving from a domestic to a foreign firm, augmented by higher wage growth among foreign-owned firms. However, these premia appear to be specific to foreign-firm employment, as workers who return to domestically-owned firms do not appear to retain the additional earnings associated with foreign-firm employment into their subsequent jobs. We then consider whether foreign-owned firms source workers differently from other New Zealand firms and whether there are systematic differences in the destinations of departing employees by firm ownership. Although foreign-owned firms do not appear to preferentially hire recent immigrants, employees of foreign owned firms are more geographically mobile within New Zealand than comparable workers in domestically owned firms, and are more likely to emigrate within a year of leaving their job.
    Keywords: Foreign direct investment (FDI); Earnings; Labour mobility
    JEL: D22 J31 F23
    Date: 2014–11
  13. By: Dorman, Peter; Nolte, Heike
    Abstract: This paper proposes a different theory of the firm and demonstrates how it can be employed to yield hypotheses about differences in innovation and human resource strategy according to the shareholder/stakeholder and liberal/coordinated market dichotomies. The theory assumes that feasible production and demand sets are nonconvex due to interaction among activities; thus firms exist to permit the identification and exploitation of profit opportunities through coordinated action. This implies that firms face a nonconvex profit landscape comparable to the fitness landscapes invoked in evolutionary biology. Given the complexity of these landscapes and the uncertainty of the location of profit hills, there is a tradeoff between exploiting existing or adjacent hills and prospecting for more distant ones: the first minimizes risk, the second maximizes potential profit. A further assumption is then introduced, that shareholder firms seek to maximizes the present value of expected future profit streams, while stakeholder firms maximize the likelihood of achieving profitability over a given time horizon. Combining these theoretical priors, we characterize the likely innovation, organizational and human resource characteristics of the two types of firms and the effects exerted by their external environment, as described in the Varieties of Capitalism literature. These theoretical predictions are confirmed in a set of case studies of a stakeholder firm in liberal and coordinated environments and a shareholder firm in a coordinated environment. This is seen through differences in the role of worker problem-solving, which brings together innovation and learning, organizational structure and human resource strategy.
    Keywords: theory of the firm, profit, nonconvexity, varieties of capitalism, innovation, strategy, worker participation
    JEL: B52 D23 D89 J53 L21 M11 M16 O32 P11 P51
    Date: 2015–06
  14. By: Patrick Gaule
    Abstract: I study how patents affect firm success (initial public offering or acquisition at a high price) in a sample of 2,191 U.S. startups applying for patent protection in the 24 months following their first round of venture capital funding. I observe both successful and unsuccessful patent applications and use a measure of patent exam- iner leniency as an instrument for getting patents. I find a positive effect of patents on firm success for life science firms but not for information technology firms.
    Keywords: patents; entrepreneurship; venture capital; patent examiners; acquisition; initial public offering;
    JEL: O34 G24 L26
    Date: 2015–07
  15. By: Bayo-Moriones, Alberto (University of Navarra); Galdon-Sanchez, Jose Enrique (Universidad Pública de Navarra); Martinez-de-Morentin, Sara (Universidad Pública de Navarra)
    Abstract: This study addresses the factors that determine the intensity of pay for performance schemes. The results indicate that the use of individual and group incentives boost intensity, whereas plant or firm pay for performance do not seem to affect the variable of interest. In addition, the adoption of measures of results, such as productivity or quality, has a significant positive effect on intensity. On the contrary, measures of human resource management outcomes, subjective measures and financial measures are not significant or have a negative effect on the intensity of pay for performance.
    Keywords: pay for performance
    JEL: J30 M52 M12
    Date: 2015–07
  16. By: Iwasaki, Ichiro
    Abstract: In this paper, using panel data of industrial firms obtained from unique questionnaire surveys conducted all over the Russian Federation in 2005 and 2009, we trace structural change in corporate governance systems before and after the global financial crisis and empirically examine their determinants. We found that, during this period, Russian firms improved the quality of corporate governance across the entire industrial sector. Furthermore, our empirical evidence strongly supports a hypothesis regarding the relationship between outside ownership and board composition as well as that concerning the impact of outside directorship on the audit system. Meanwhile, our estimation results also indicate the possibility that the global financial crisis has brought about asymmetric changes, in the sense that it enhanced the independence of corporate boards, while it deteriorated the independence of the audit system, thus, partially rejecting our prediction with respect to the disciplinary effect of the crisis on the corporate governance system.
    Keywords: global financial crisis, ownership change, evolution of corporate governance, board composition, audit system, Russia
    JEL: D22 G01 G34 M42 P34
    Date: 2015–07
  17. By: Filip Rozsypal (University of Cambridge)
    Abstract: This paper presents an economy where business cycles and long term growth are both endogenously generated by the same type of iid shocks. I embed a multi-sector real business cycle model into an endogenous growth framework where innovating firms replace incumbent production firms. The only source of uncertainty is the imperfectly observed quality of innovation projects. As long as the goods are complements, a successful innovation in one sector increases demand for the output of other sectors. Higher profits motivate higher innovation efforts in the other sectors. The increase in productivity in one sector is thus followed by increases in productivity in the other sectors and the initial innovation generates persistent movement in aggregate productivity.
    Date: 2015

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