nep-bec New Economics Papers
on Business Economics
Issue of 2015‒10‒04
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Employment and wage insurance within firms: Worldwide evidence By Ellul, Andrew; Pagano, Marco; Schivardi, Fabiano
  2. When Culture Governs Business Practice…. A Look at Indian Diamond Cutting and Polishing Industry By Rao Indu
  3. The effect of board directors from countries with different genetic diversity levels on corporate performance By Delis, Mantos D.; Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios
  4. Endogenous Firms' ?Exit, Inefficient Banks and Business Cycle Dynamics By Lorenza Rossi
  5. Internalizing Global Value Chains: A Firm-Level Analysis By Laura Alfaro; Pol Antràs; Davin Chor; Paola Conconi
  6. Opportunities for Cooperation in Removing Prohibitive Trade Barriers By David R. DeRemer
  7. Markup and productivity of exporters and importers By Balázs Murakozy; Cecilia Hornok
  8. Labour as a knowledge carrier – How increased mobility influences entrepreneurship By Braunerhjelm, Pontus; Ding, Ding; Thulin, Per
  9. Micro-founded measurement of regional competitiveness in Europe By Gabor Bekes; Gianmarco I.P. Ottaviano
  10. Small Versus Large Firms Employment Patterns in Finland: a Comparison. By Fornaro, Paolo; Luomaranta, Henri
  11. Disentangling irregular cycles in economic time series By Schober, Dominik; Woll, Oliver
  12. Changes in the Factor Structure of the U.S. Economy: Permanent Breaks or Business Cycle Regimes? By Luke Hartigan
  13. Liquidity, Innovation, and Endogenous Growth By Malamud, Semyon; Zucchi, Francesca
  14. Social Networks, Ethnicity, and Entrepreneurship By William R. Kerr; Martin Mandorff

  1. By: Ellul, Andrew; Pagano, Marco; Schivardi, Fabiano
    Abstract: We investigate the determinants of firms' implicit insurance to employees, using a difference-indifference approach: we rely on differences between family and non-family firms to identify the supply of insurance, and exploit variation in unemployment insurance across and within countries to gauge workers' demand for insurance. Using a firm-level panel from 41 countries, we find that family firms feature more stable employment, greater wage flexibility and lower labor cost than non-family ones. Employment stability in family firms is greater, and the wage discount larger, in countries with more generous public unemployment insurance: private and public provision of employment insurance are substitutes.
    Keywords: risk-sharing,insurance,social security,unemployment,wages,family firms
    JEL: G31 G32 G38 H25 H26 M40
    Date: 2015
  2. By: Rao Indu
    Abstract: In absence of the well-defined strategy, structure and processes in informal firms in emerging markets, it is the intangible aspect of organizing, specifically, the organizational culture that governs business practices. This paper investigates organizational culture of one such firm of the Indian diamond industry to contribute to this emerging area of scholarship. Today, global value chains are comprised of both formal and informal firms but we know little about the informal firm. Since managers of the formal firms need to interact, negotiate and deal with informal firms to transact global business, they also need to understand the organizational aspects of the informal firm. I make an attempt in this direction to inform scholars and practitioners about the organizational aspects of such firms by investigating organizational culture in the Indian Diamond Industry.
  3. By: Delis, Mantos D. (University of Surrey); Gaganis, Chrysovalantis (University of Crete); Hasan, Iftekhar (Gabelli School of Business, Fordham University and Bank of Finland); Pasiouras, Fotios (University of Surrey, UK, and University of Crete)
    Abstract: We link genetic diversity in the country of origin of the firms’ board members with corporate performance via board members’ nationality. We hypothesize that our approach captures deep-rooted differences in cultural, institutional, social, psychological, physiological, and other traits that cannot be captured by other recently measured indices of diversity. Using a panel of firms listed in the North American and U.K. stock markets, we find that adding board directors from countries with different levels of genetic diversity (either higher or lower) increases firm performance. This effect prevails when we control for a number of cultural, institutional, firm-level, and board member characteristics, as well as for the nationality of the board of directors. To identify the relationship, we use as instrumental variables for our diversity indices the migratory distance from East Africa and the level of ultraviolet exposure in the directors’ country of nationality.
    Keywords: genetic diversity; corporate performance; nationality of board members
    JEL: G30 M10 M14
    Date: 2015–08–17
  4. By: Lorenza Rossi
    Abstract: I consider a NK-DSGE model with endogenous ?firms'? exit and entry together with a monopolistic competitive banking sector, where defaulting ?firms do not repay loans to banks. I show that the exit margin is an important shock transmission channel. It implies: i) an endogenous countercyclical number of fi?rms destruction; ii) an endogenous countercyclical bank markup and spread. The interaction between i) and ii) generates a stronger propagation mechanism with respect to a model with efficient banks. Compared to a model with exogenous exit the model generates a correlation between output and ?firms' ?entry closer to the data.
    Keywords: fi?rms ?endogenous exit, ?firms dynamics, monopolistic banking, inefficient fi?nancial markets, countercyclical bank markup, interest rate spread..
    JEL: E32 E44 E52 E58
    Date: 2015
  5. By: Laura Alfaro; Pol Antràs; Davin Chor; Paola Conconi
    Abstract: In recent decades, technological progress in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. Building on Antràs and Chor (2013), we describe a property-rights model of firm boundary choices along the value chain. To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model's predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm's propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage. Our results suggest that contractual frictions play an important role in shaping the integration choices of firms around the world.
    JEL: D23 F14 F23 L20
    Date: 2015–09
  6. By: David R. DeRemer (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: Much potential for trade liberalization exists in industries and markets with trade barriers that are prohibitive for all or many firms. In standard political economic theories of trade policy, observed prohibitive barriers must be globally optimal according to static government preferences, leaving no possibility for a trade agreement. This paper shows that for prohibitive policies in imperfectly competitive markets, a trade agreement can still play a role even without any changes in governments' policy preferences. Theory can then further identify market characteristics for which liberalization is most likely to be feasible. To illustrate the simplest case, we consider a two-country model with firms engaged in Cournot competition in segmented markets. For plausible ranges of political weights on firm profits, there is a role for a trade agreement in eliminating prohibitive trade barriers. We then consider how the potential for cooperation varies with trade costs and competition. Industries with more firm heterogeneity have greater potential for cooperation, provided that the lower productivity firms are sufficiently competitive. The implications of these results are discussed for negotiations involving either developing country exporters or services trade, two areas in which prohibitive trade barriers remain important.
    Keywords: trade agreements, Cournot competition, political economy of trade policy
    JEL: F12 F13 F15
    Date: 2015–06
  7. By: Balázs Murakozy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Cecilia Hornok (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: This paper studies the relationship between firm markups and importing intermediate inputs and exporting using detailed firm-level data from Hungary in 1995-2003. We estimate production functions structurally to obtain firm-year-level productivity and markup estimates. We find that importing intermediate inputs is associated with large markup premium, while the exporter markup premium is nonexistent when we control for the importer status. We interpret our results in a simple theoretical framework, where firms lower their markup when exporting to more competitive foreign markets and where importing intermediate inputs leads to higher-quality products.
    Keywords: markups, exporting, importing, detailed trade data, Hungary
    JEL: D22 D24 F14 L11 L60
    Date: 2015–06
  8. By: Braunerhjelm, Pontus (Centre of Excellence for Science and Innovation Studies (CESIS), Royal Institute of Technology (KTH), & Swedish Entrepreneurship Forum); Ding, Ding (Centre of Excellence for Science and Innovation Studies (CESIS), & Royal Institute of Technology (KTH)); Thulin, Per (Centre of Excellence for Science and Innovation Studies (CESIS), Royal Institute of Technology (KTH), & Swedish Entrepreneurship Forum)
    Abstract: According to the knowledge-based spillover theory of entrepreneurship (KSTE), entrepreneurship is positively associated with the knowledge endowment level. An increase in knowledge expands the opportunity set, which is then exploited by heterogeneous entrepreneurs. The objective of this paper is to empirically test the validity of the KSTE by employing a detailed database comprising more than 19 million observations for the period 2001–2008 at the level of individuals, firms and regions in Sweden. Knowledge is claimed to be partly embodied in labour, implying that an increase in labour mobility can be expected to influence knowledge endowment at the regional level. Our dependent variable is an individual who has remained in a region throughout the time period considered. Controlling for a number of other variables, inter-regional labour inflows and intra-regional mobility levels are shown to exert a strong positive effect on entrepreneurship. This contrasts with inter-regional outflows, which negatively affect entrepreneurial entry. Another noteworthy result is that the probability of exploiting an increased knowledge stock through entrepreneurship increases by 15 percentage points if the individual has previous experience in starting a firm.
    Keywords: Entrepreneurship; Knowledge-based spillover theory of entrepreneurship; Knowledge diffusion; Labour mobility
    JEL: J61 L26 O33
    Date: 2015–09–28
  9. By: Gabor Bekes (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and CEPR); Gianmarco I.P. Ottaviano (London School of Economics, University of Bologna, CEP and CEPR)
    Abstract: Enhancing competitiveness is a popular target in economic policy making – not only at the national, but at the regional level as well despite neither generally accepted definition nor any strong agreement on how to measure it. In this chapter we discuss the conceptual underpinnings of why it is interesting to unpack the economic performance of a country into the economic performance of its regions. We argue that as firms compete; measuring regional competitiveness should be also based on comparing firm performance across EU regions. Given available data, we propose a new way to gauge how firms fare is to look at their ability to access and penetrate world markets. The key index is export per worker from a region to non-EU destinations relative to the EU average – a ‘regional competitiveness’ index that captures the capacity of a region’s firms to outperform the firms of the average EU region in terms of exports.
    Keywords: export, regional competitiveness, measurement, granularity
    JEL: R11 F14 R58
    Date: 2015–06
  10. By: Fornaro, Paolo; Luomaranta, Henri
    Abstract: In this paper, we use monthly employment data of Finnish firms to examine the differences in the employment behavior between big and small enterprises. In particular, we investigate which size class of firms has been growing more, which one has been the driver of net job creation and finally which type of enterprise has been more procyclical. In line with previous literature, we utilize various definitions to include a firm inside the small or large category, and consider both one dataset including entry and exit and one including only long-lasting firms. We find that small firms have shown higher growth rates, on average, and that they have been the driver of employment creation. Finally, we find that large firms are more procyclical than small enterprises, especially during economic contractions.
    Keywords: Firm-level data, Large datasets, Employment statistics
    JEL: E24 E32 J63 L25 L26
    Date: 2015
  11. By: Schober, Dominik; Woll, Oliver
    Abstract: Cycles play an important role when analyzing market phenomena. In many markets, both overlaying (weekly, seasonal or business cycles) and time-varying cycles (e.g. asymmetric lengths of peak and off peak or variation of business cycle length) exist simultaneously. Identification of these market cycles is crucial and no standard detection procedure exists to disentangle them. We introduce and investigate an adaptation of an endogenous structural break test for detecting at the same time simultaneously overlaying as well as time-varying cycles. This is useful for growth or business cycle analysis as well as for analysis of complex strategic behavior and short-term dynamics.
    Keywords: structural breaks,cluster analysis,filter,rolling regression,change points,model selection,cycles,economic dynamics
    JEL: C22 C24 C29 O47 L50
    Date: 2015
  12. By: Luke Hartigan (School of Economics, UNSW Business School, UNSW)
    Abstract: The factor structure of the U.S. economy appears to change over time. Unlike previous studies which suggest this is due to permanent structural breaks in factor loadings, I argue instead that the volatility and persistence of factor processes undergo recurring changes related to the business cycle. To capture this, I develop a two-step Markov-switching static factor estimation procedure and apply it to a well-studied U.S. macroeconomic data set. I find strong support for Markov-switching in the factors processes, with switching variances being most dominant. Conditional on Markov-switching factor processes, tests for regime-dependent factor loadings show only moderate evidence of change. Overall, the results support regime-dependent factor processes as the main explanation for the diverging number of estimated factors in empirical applications and challenge the global linearity assumption implicit in large dimensional factor models of the U.S. economy.
    Keywords: Approximate Factor Model, Large Data Sets, Markov Switching Model, Structural Breaks
    JEL: C32 C38 C51 E32
    Date: 2015–09
  13. By: Malamud, Semyon; Zucchi, Francesca
    Abstract: We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that liquidity constraints unambiguously lead firms to decrease their production rate but, surprisingly, may spur investment in innovation (R&D). Using the model, we characterize which firms substitute production for innovation when constrained and thus display a non-monotonic relation between cash reserves and R&D. We embed our single-firm dynamics in a Schumpeterian model of endogenous growth and demonstrate that financing frictions have an ambiguous effect on economic growth.
    Keywords: Cash management; Creative destruction; Endogenous growth; Financial constraints; Innovation
    JEL: D21 G31 G32 G35 L11
    Date: 2015–09
  14. By: William R. Kerr; Martin Mandorff
    Abstract: We study the relationship between ethnicity, occupational choice, and entrepreneurship. Immigrant groups in the United States cluster in specific business sectors. For example, Koreans are 34 times more likely than other immigrants to operate dry cleaners, and Gujarati-speaking Indians are 108 times more likely to manage motels. We develop a model of social interactions where non-work relationships facilitate the acquisition of sector-specific skills. The resulting scale economies generate occupational stratification along ethnic lines, consistent with the reoccurring phenomenon of small, socially-isolated groups achieving considerable economic success via concentrated entrepreneurship. Empirical evidence from the United States supports our model's underlying mechanisms.
    JEL: D21 D22 D85 F22 J15 L14 L26 M13
    Date: 2015–09

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