nep-bec New Economics Papers
on Business Economics
Issue of 2015‒09‒18
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Grown-up Business Cycles By Aysegul Sahin; Benjamin Pugsley
  2. Firm Dynamics and the Granular Hypothesis By Basile Grassi; Vasco Carvalho
  3. Vertical ownership and export performance: firm-level evidence from France By Carl Gaigné; Karine Latouche; Stéphane Turolla
  4. Technological Relatedness and Firm Productivity: Do low and high performing firms benefit equally from agglomeration economies in China? By Anthony J. Howell, Canfei He, Rudai Yang, Cindy Fan; Canfei He; Rudai Yang; Cindy Fan
  5. Strategic Delegation of Indebted Firms in a Duopoly with Uncertain Demand By Tetsuya Shinkai; Takao Ohkawa; Makoto Okamura; Kozo Harimaya
  6. Agricultural productivity in New Zealand: First estimates from the Longitudinal Business Database By Eyal Apatov; Richard Fabling; Adam B Jaffe; Michele Morris; Matt Thirkettle
  7. Assessing the financial and financing conditions of firms in Europe: the financial module in CompNet By Ferrando, Annalisa; Altomonte, Carlo; Blank, Sven; Meinen, Philipp; Iudice, Matteo; Felt, Marie-Hélène; Neugebauer, Katja; Siedschlag, Iulia
  8. Industry Relatedness, Agglomeration Externalities and Firm Survival in China By Canfei He; Qi Guo; David Rigby
  9. Competition, product safety, and product liability By Chen, Yongmin; Hua, Xinyu
  10. Preaching Water But Drinking Wine? Relative Performance Evaluation in International Banking By Dragan Ilić; Sonja Pisarov; Peter S. Schmidt
  11. Firm Dynamics and Regional Inequality of Productivity in China By Canfei He; Yi Zhou
  12. Location Determinants of high Growth Firms By Li, Minghao; Goetz, Stephan J.; Partridge, Mark; Fleming, David A.
  13. Personality and Sales Performance By Y.Leng Chow; S.Eng Ong
  14. Intrafirm Trade and Vertical Fragmentation in U.S. Multinational Corporations By Natalia Ramondo; Veronica Rappoport; Kim J. Ruhl

  1. By: Aysegul Sahin (Federal Reserve Bank of New York); Benjamin Pugsley (Federal Reserve Bank of New York)
    Abstract: Abstract We document two striking facts about U.S. firm dynamics and interpret their significance for aggregate employment dynamics. The first observation is the steady decline in the firm entry rate over the last thirty years, and the second is the gradual shift of employment from younger to older firms over the same period. Both hold across industries and geography. We show that despite these trends, firms' lifecycle dynamics and their business cycle properties have remained virtually unchanged. Consequently, the reallocation of employment towards older firms results entirely from the cumulative effect of the 30-year decline in firm entry. This 'startup deficit' has both an immediate and a delayed (by shifting the age distribution) effect on aggregate employment dynamics. Recognizing this evolving heterogeneity is crucial for understanding shifts in aggregate behavior of employment over the business cycle. With mature firms less responsive to business cycle shocks, the cyclical component of aggregate employment growth diminishes with the increasing share of mature firms. At the same time, the trend decline in firm entry masks the diminishing cyclicality in contractions and reinforces it during expansions, which generates the appearance of jobless recoveries where aggregate employment recovers slowly relative to output.
    Date: 2015
  2. By: Basile Grassi (University of Oxford); Vasco Carvalho (University of Cambridge and CREi)
    Abstract: Building on the standard firm dynamics setup of Hopenhayn (1992), we develop a quantitative theory of aggregate fluctuations arising from idiosyncratic shocks to firm level productivity. This allows us to generalize the theoretical results in Gabaix (2011) to account for persistent micro-level shocks, optimal size decisions as well as endogenous firm entry and exit. We then use our model to provide a quantitative evaluation of Gabaix's "granular hypothesis" and find that it yields aggregate fluctuations of the same order of magnitude as a standard representative-firm real business cycle model. A calibration of our model to the US economy with a large number of firms leads to sizable aggregate fluctuations: the standard deviation of aggregate TFP (respectively output) is 0.8% (respectively 1.7%). We use this calibration to explore firms' comovement over the business cycle. The model predicts that the differential growth between large and small firms is pro-cyclical as it is in the data.
    Date: 2015
  3. By: Carl Gaigné; Karine Latouche; Stéphane Turolla
    Abstract: This paper examines whether ownership arrangements between manufacturers and intermediaries improve the export performance of the former. We develop a theoretical model of trade with vertically linked industries whereby upstream manufacturers compete in export markets and may decide to acquire ownership stakes in an intermediary. The model highlights how more productive firms succeed in managing the double marginalization problem and in reducing the costs of exporting through forward acquisition. On the flip side, we find that vertical ownership creates a market externality among manufacturers due to the reallocation of market shares from small firms to large firms, forcing some low-productivity firms to exit foreign markets. Predictions from the model are tested using firm-level data on the French agri-food sector. The results confirm the model predictions and reveal that the benefits from forward acquisitions could be quite large.
    Keywords: forward integration,trade intermediation,export decision,heterogeneous firms,markups
    JEL: F12 L22
    Date: 2015
  4. By: Anthony J. Howell, Canfei He, Rudai Yang, Cindy Fan; Canfei He; Rudai Yang; Cindy Fan
    Abstract: Building on the evolutionary economic geography literature, we employ the density measure introduced by ? to dynamically track the impact of technological relatedness on firm productivity. We rely on advanced quantile regression techniques to determine whether technological relatedness stimulates productivity and whether the size of the effect varies for low and high performing firms. Lastly, taking China’s economic transition into account, we test whether changes in the local industrial mix brought about by China’s market reforms enable or inhibit performance-enhancing spillovers. We show that a dynamic tradeoff exists between agglomeration costs and benefits that depends, in part, on the firm’s placement along the productivity distribution: the effect of technological relatedness reduces productivity for the least performing firms, but enhances it for better performing firms. As a result, spillovers via technological relatedness lead to improvements in the geographical welfare by intensifying the learning effect for the vast majority of co-located firms, in spite of increasing productivity disparities between the bottom and top performing firms.
    Keywords: Firm Productivity, Relatedness, Agglomeration Economies, Firm Heterogeneity
    Date: 2015–09
  5. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Takao Ohkawa (Faculty of Economics Ritsumeikan University); Makoto Okamura (Faculty of Economics, Hiroshima University); Kozo Harimaya (Faculty of Business Administration Ritsumeikan University)
    Abstract: We examine an effect of strategic delegation on the competition behavior of indebted …firms and welfare in a Cournot duopoly with demand uncertainty. We establish that the owners of each …firm delegate their tasks and decisions to a manager when the demand is sufficiently large but one …firm chooses no delegation and the other chooses delegation when the demand is small. This result is consistent with the duopoly competition example between the Mitsui Gomei Kaisya and Suzuki & Co. from the late Meiji era to Taisho era in Japan.
    Keywords: indebted …firms, delegation, managerial incentives, and Cournot duopoly
    JEL: G32 L13 L12
    Date: 2015–09
  6. By: Eyal Apatov (Motu Economic and Public Policy Research); Richard Fabling (Motu Economic and Public Policy Research); Adam B Jaffe (Motu Economic and Public Policy Research); Michele Morris; Matt Thirkettle (Cornell University)
    Abstract: Exports of dairy and sheep/beef products account for over 40% of New Zealand's aggregate merchandise exports. As a consequence, the performance of farms in these industries has a significant impact on the New Zealand economy. In this study, we link financial and agricultural data from the New Zealand Longitudinal Business Database (LBD) to estimate production functions of dairy and sheep/beef firms in New Zealand. Overall, we find that the data enables us to explain much of the industry-level variation in productivity and output, offering greater flexibility and insight than simply examining the official (aggregated) statistics. We find that variation in output can be largely explained by variation in capital, labour, intermediate expenditure, and productive land. We also find differences across industries in the way various farm practices (e.g. stocking rates, fertilizer use, supplementary activities, etc.) and area characteristics (including weather) relate to output. Finally, we find that estimating firm productivity at the industry level is less likely to accurately model the relationships for some sub-groups of firms (e.g. firms with different land size). We believe that our methodology could be useful for future studies addressing research questions relevant to this sector.
    Keywords: Firm-level productivity; dairying; sheep-beef farming; Translog; fixed effects
    JEL: D22 Q12 R30
    Date: 2015–09
  7. By: Ferrando, Annalisa; Altomonte, Carlo; Blank, Sven; Meinen, Philipp; Iudice, Matteo; Felt, Marie-Hélène; Neugebauer, Katja; Siedschlag, Iulia
    Abstract: This paper provides an encompassing description of the various indicators compiled in the financial module of CompNet using balance sheet information of European firms. We investigate whether and to which extent the heterogeneous financial positions of firms have affected firms’ investment decisions, especially during the recent crisis. Our results confirm the relevance of leverage for investment, in addition to other common determinants, such as cash flow or sales growth. In particular, we find evidence that higher levels of indebtedness act as a drag on investment. We investigate cash holding policies and find significant differences across firm sizes and degrees of financial constraints. Furthermore, our data confirm the pro-cyclicality of firm profitability and its negative association with financial constraints. Finally, we exploit the richness of this new dataset to document the relationships between firms’ financial and financing conditions and their productivity. JEL Classification: D22, D24, D92, G32
    Keywords: firm financing conditions and constraints, firm heterogeneity, productivity
    Date: 2015–08
  8. By: Canfei He; Qi Guo; David Rigby
    Abstract: The importance of agglomeration externalities for economic activities is widely recognized. Recent developments highlight the importance of industry relatedness to the performance of firms, industries and regions. This study explores the determinants of firm survival in China and tests the significance of industry relatedness using firm-level data over the period 1999-2007. Industry relatedness is developed from the co-occurrence analysis of paired industries. Results based on Cox regression models show that firms benefiting from industry relatedness and governmental supports are more likely to survive. However, the influence of relatedness varies across industries and provinces. This study highlights the significant influence of local forces on firm dynamics and enriches our understanding of regional industrial restructuring in China.
    Keywords: Industry relatedness, Agglomeration Externalities, Firm Survival, China
    Date: 2015–09
  9. By: Chen, Yongmin; Hua, Xinyu
    Abstract: A firm's incentive to invest in product safety is affected by both the market environment and the liability when its product causes consumer harm. A long-standing question in law and economics is whether competition can (partially) substitute for product liability in motivating firms to improve product safety. We investigate this issue in a spatial model of oligopoly with product differentiation, where reputation provides a market incentive for product safety and higher product liability may distort consumers' incentive for proper product care. We find that partial liability, together with reputation concerns, can motivate firms to make socially desirable safety investment. Increased competition due to less product differentiation lowers equilibrium market price, which diminishes a firm's gain from maintaining reputation and raises the socially desirable product liability. On the other hand, an increase in the number of competitors reduces both the benefit from maintaining reputation and the potential cost savings from cutting back safety investment; consequently, the optimal liability may vary non-monotonically with the number of competitors in the market. In general, therefore, the relationship between competition and product liability is subtle, depending on how competition is measured.
    Keywords: product safety, product liabilty, competition
    JEL: K13 L13 L15
    Date: 2015–09–04
  10. By: Dragan Ilić; Sonja Pisarov; Peter S. Schmidt (University of Basel)
    Abstract: Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge arises from intricacies of identifying the correct peers. And on a simpler note, corporate commitments to RPE could be mere exercises in empty rhetoric. We address both issues and test the use of RPE in a new sample of large international non-U.S. banks. Taken as a whole, the banks in our sample show moderate evidence consistent with RPE. We report stronger evidence once we investigate the subsample of banks that disclose the use of peers in their compensation schemes. This finding lends support to the credibility and thus informational value of RPE commitments. Digging deeper, we find that RPE usage is driven by firm size and growth options.
    Keywords: Relative Performance Evaluation, Executive Compensation, Peers, Banks, Disclosure
    JEL: J33 D86 G3 G21
    Date: 2015
  11. By: Canfei He; Yi Zhou
    Abstract: Industrial change processes are underlying forces that determine the change of regional productivity. In developed market economies, less productive firms are more likely to exit while productive firms have more chance to enter and to survive. As a result, spatial inequality of firm dynamics will directly influence the inequality of regional productivity. This study investigates how firm dynamics would affect regional productivity using firm level data during 1998-2007 in China. We first estimate total factor productivity (TFP) for each firm based on the semi-parametric method proposed by Olley and Pakes (1996). Regional productivity is derived by weighing the firm TFP using gross industrial output. There is considerable spatial inequality of TFP paired with a trend of convergence over the time period of 1999-2007. Decomposition of TFP growth shows that firm entry, exit and survival do contribute to TFP change and their contributions vary across prefectures substantially. The between share holds the largest regional difference, as the most important factor contributing to the spatial inequality of regional TFP. The restructuring of SOEs has critically contributed to the spatial inequality of TFP by raising TFP in the traditional industrial bases and by facilitating the development of productive private and foreign sectors particularly in the coastal region. The finding indicates that resource reallocation across firms with different ownerships is the key mechanism to improve regional productivity.
    Keywords: Firm Dynamics, Regional Inequality, TFP, Decomposition Method, China
    Date: 2015–09
  12. By: Li, Minghao; Goetz, Stephan J.; Partridge, Mark; Fleming, David A.
    Abstract: County-level location patterns of INC5000 companies provide one map of American entrepreneurship and innovativeness, and understanding the local factors associated with these firms' emergence is important for stimulating regional economic growth and innovation. We draw on the knowledge spillover theory of entrepreneurship to motivate our regression model, and augment this theory with additional regional features that have been found to be important in the firm-location literature. Zero-inflated negative binomial regressions indicate that these firms exist in counties with larger average establishment size, higher educational attainment, and more natural amenities. Income growth, a mix of higher-paying industries, and more banks per capita are associated with a smaller presence of these types of firms, all else equal. We conclude that the local conditions favoring high growth firms are likely to be different from those favoring new firms in general, and that these conditions differ significantly in urban and rural areas and by industrial sectors.
    Keywords: Firm location, Firm revenues, High growth firms, INC5000 firms, Negative Binomial regression
    JEL: L26 R1
    Date: 2015–08–25
  13. By: Y.Leng Chow; S.Eng Ong
    Abstract: Research in psychology and behavioral studies have shown that integrity validation by way of meta-analysis is important in predicting job performance and counterproductive job behaviors (Deniz, Chockalingam and Schmidt, 1993). Dependability testing for personnel selection is also routinely carried out by financial institutions and government agencies (Sackett, Burris and Callahan, 1989). The application of personality profiling for real estate salespeople is largely absent in the literature save for isolated work (see Brinkmann, 2009). Thus, the objective of this study is to carry out a personality profiling exercise for real estate salespeople in Singapore and coupled with their corresponding observable characteristics such as age, gender, qualifications, etc., to identify both an empirical and personality profile of successful real estate salespeople in Singapore. Using these results, we can further compare this profile with their Western counterparts to check if there are cross-cultural differences. The first phase of our study was carried out in December 2013. 185 respondents from one brokerage agency firm took our 16 PF test. Out of these respondents, 25% (47 pax) were identified to be in the Top 300 ranking in terms of sales performance. We are currently preparing to implement the second phase of our study for respondents from two other agency firms. In terms of methodology, we adopted the Sixteen Personality Factor Questionnaire (16PF) developed by Raymond Cattell. The idea is that we could better understand and predict human behavior using 16 narrow personality descriptors (such as warmth, reasoning, emotional stability, etc.) and 5 broader primary personality descriptors (such as extraversion, anxiety, independence, etc.). We were able to match the subject's personality indicators with observable characteristics (age, gender, education level, number of years with company and whether the salesperson joined from a different agency). We ran a probit model using a dummy indicator of one to identify the top salespeople (Top 300 ranking) as the dependent variable and the list of 16 narrow personality descriptors and observable characteristics as the explanatory variables. Our initial results indicate that in terms of observable characteristics, top salespeople tend to be younger, more educated, and have stayed with the company for a longer period of time. The last finding hints at a possible survivorship bias; that is, only performing sales
    Keywords: Cross Cultural; Personality Indicators; Successful Salespeople
    JEL: R3
    Date: 2015–07–01
  14. By: Natalia Ramondo; Veronica Rappoport; Kim J. Ruhl
    Abstract: Using firm-level data, we document two new facts regarding intrafirm trade and the activities of the foreign affiliates of U.S. multinational corporations. First, intrafirm trade is concentrated among a small number of large affiliates within large multinational corporations; the median affiliate ships nothing to the rest of the corporation. Second, we find that the input-output coefficient linking the parent's and affiliate's industries of operation—a characteristic commonly associated with production fragmentation— is not related to a corresponding intrafirm low of goods.
    Keywords: Intrafirm trade, multinational corporations, international value chains
    JEL: F12 F14 L11 L25
    Date: 2015–09

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