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

  1. Environmental investment and firm performance: A network approach By Bostian, Moriah; Färe, Rolf; Grosskopf, Shawna; Lundgren, Tommy
  2. Trade, Technologies, and the Evolution of Corporate Governance By Schymik, Jan Simon
  3. Owner-Level Taxes and Business Activity By Henrekson, Magnus; Sanandaji, Tino
  4. Zipf's Law, Pareto's Law, and the Evolution of Top Incomes in the U.S. By Makoto Nirei; Shuhei Aoki
  5. The Promise and Potential of Linked Employer-Employee Data for Entrepreneurship Research By Christopher Goetz; Henry Hyatt; Erika McEntarfer; Kristin Sandusky
  6. On measuring the contribution from firm turnover to aggregate productivity growth. Selection on profitability and not productivity By Thomas von Brasch
  7. How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements? By Hiroshi Kitamura; Noriaki Matsushima; Misato Sato
  8. Too Small To Protect? The Role of Firm Size in Trade Agreements By Matthew T. Cole; Ben Zissimos
  9. Corporate Size–Performance Relation across Countries and Industries: Findings from the European Union By Julia Koralun-Bereznicka
  10. The performance of large versus specialized firms: A study of firms importing apples into Norway By Straume, Hans-Martin; Vårdal, Erling
  11. Intrafirm trade and vertical fragmentation in U.S. multinational corporations By Natalia Ramondo; Veronica Rappoport; Kim J. Ruhl
  12. Countercyclical Recruiting Rates and the Value of Jobs By Yashiv, Eran
  13. The Intellectual Property Right and Firm Survival in Different Growth Stages By S0-Jin Lim
  14. Characterising the financial cycle: a multivariate and time-varying approach By Hiebert, Paul; Schüler, Yves S.; Peltonen, Tuomas A.
  15. The Human Factor in Acquisitions: Cross-Industry Labor Mobility and Corporate Diversification By Geoffrey Tate; Liu Yang

  1. By: Bostian, Moriah (Lewis & Clark College); Färe, Rolf (Oregon State University); Grosskopf, Shawna (Oregon State University and CERE); Lundgren, Tommy (CERE)
    Abstract: This study examines the role of investment in environmental production practices for both environmental performance and energy efficiency over time. We employ a network DEA approach that links successive production technologies through intertemporal investment decisions with a period by period estimation. This allows us to estimate energy efficiency and environmental performance separately, as well as productivity change and its associated decompositions into efficiency change and technology change. Incorporating a network model also allows us to account for both short-term environmental management practices and long-term environmental investments in each of our productivity measures. We apply this framework to a panel of detailed plant-level production data for Swedish manufacturing firms covering the years 2002 - 2008.
    Keywords: Energy Efficiency; Environmental Performance; Network DEA; Malmquist Index; Investment
    JEL: D22 D24 M14
    Date: 2015–09–19
  2. By: Schymik, Jan Simon
    Abstract: Do international trade and technological change influence how firms create incentives for human capital? I present a model that incorporates agency problems into a framework with firm heterogeneity and human capital. My model indicates that trade liberalizations and skill-biased technological change alter the way how the largest firms in an economy incentivize their managers. Increases in managerial reservation wages lead to a reduction in corporate governance investments and a rise in performance compensation since monitoring managers becomes less efficient. Using data on CEO compensation and entrenchment opportunities in public industrial firms in the U.S., I document strong empirical regularities in support of the model predictions. Firms allow for more managerial entrenchment and offer larger CEO compensation when their industries become more open to trade or when production becomes more I.T. intensive.
    Keywords: International Trade and Firm Organization; Agency Problems in International Trade; Endogenous Managerial Entrenchment; Corporate Governance and CEO Compensation
    JEL: F1 F16 G34 J33 L22 O33
    Date: 2015–09
  3. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF))
    Abstract: In some classes of models, taxes at the owner level are “neutral” and have no effect on firm activity. However, this tax neutrality is sensitive to assumptions and no longer holds in more complex models. We review recent research that incorporates greater complexity in studying the link between taxes and business activity – particularly entrepreneurship. Dividend taxes on owners of large firms affect firm activity in models that include agency conflicts between owners and managers. Similarly, after incorporating entrepreneurs’ occupational choice into the model, taxes are no longer neutral. By forsaking lucrative alternative careers, skilled entrepreneurs tend to have high opportunity costs, which make the choice of attempting to start a business of first order importance. Moreover, in models where it is assumed that capital flows across borders without cost, taxes on domestic business owners do not alter business activity because foreign capital seamlessly compensates for tax-induced declines in investments. This theoretical notion is contradicted by the strong “home bias” observed in business ownership, in particular for small firms and startups without easy access to international capital markets. Recent empirical work has emphasized that taxes have heterogeneous effects on mature firms, entrepreneurial startups, and owner-managed small firms. Lowering dividend taxes on firms with dispersed ownership has been shown to shift capital from mature firms into rapidly growing firms. Moreover, capital gains taxation tends to reduce the number of innovative startups and diminish venture capital activity, while high owner-level taxes encourage small business activity and non-entrepreneurial self-employment because such firms have more opportunities to avoid or evade taxes. To obtain efficient incentives in entrepreneurial startups, contractual terms are required that ex ante guarantee that all providers of critical inputs, especially equity constrained entrepreneurs, are entitled to a share of the resulting capital value firm. Unless properly designed, owner-level taxes prevent such ex ante contracting and thus lower the likelihood of eventual success.
    Keywords: Business taxation; Capital income taxation; Corporate governance; Entrepreneurship; Institutions; Tax policy
    JEL: H25 H26 H32 L26
    Date: 2015–10–05
  4. By: Makoto Nirei (Hitotsubashi University); Shuhei Aoki (Hitotsubashi University)
    Abstract: We construct a tractable neoclassical growth model that generates Pareto's law of income distribution and Zipf's law of firm size distribution from idiosyncratic, firm-level productivity shocks. CEOs invest in risk-free assets as well as their own firms' risky stocks, through which their assets and incomes depend on firm-level shocks. Using the model, we evaluate how changes in tax rates can account for the recent evolution of top incomes in the U.S. The model matches the decline in the Pareto exponent of income distribution and the trend of the top 1% income share in the U.S. in recent decades.
    Date: 2015
  5. By: Christopher Goetz; Henry Hyatt; Erika McEntarfer; Kristin Sandusky
    Abstract: In this paper, we highlight the potential for linked employer-employee data to be used in entrepreneurship research, describing new data on business start-ups, their founders and early employees, and providing examples of how they can be used in entrepreneurship research. Linked employer-employee data provides a unique perspective on new business creation by combining information on the business, workforce, and individual. By combining data on both workers and firms, linked data can investigate many questions that owner-level or firm-level data cannot easily answer alone - such as composition of the workforce at start-ups and their role in explaining business dynamics, the flow of workers across new and established firms, and the employment paths of the business owners themselves.
    Date: 2015–09
  6. By: Thomas von Brasch (Statistics Norway)
    Abstract: Foster et al. (2001) outline a framework that is commonly used to identify the contribution from firm turnover to aggregate productivity growth. The framework is not derived from economic theory and it implies that productivity levels determine the contribution from reallocation and firm turnover. In this paper, I outline an index for aggregate productivity growth based on economic theory. In contrast to common beliefs, I show that the contribution from firm turnover to aggregate productivity growth should be based on the profitability, and not the productivity, of these firms.
    Keywords: Productivity; Profitability; Aggregation
    JEL: D24 J24 L25 O47 C43
    Date: 2015–10
  7. By: Hiroshi Kitamura; Noriaki Matsushima; Misato Sato
    Abstract: This study constructs a model to examine anticompetitive exclusive supply contracts that prevent an upstream supplier from selling input to a new downstream firm. With regard to the technology to transform input produced by the supplier, as an entrant becomes increasingly efficient, its input demand can decrease, and thus, the supplier earns smaller profits when a socially efficient entry is allowed. Hence, an inefficient incumbent can deter a socially efficient entry through exclusive supply contracts, even in the framework of the Chicago School argument, which comprises a single seller, buyer, and entrant.
    Date: 2013–08
  8. By: Matthew T. Cole (Department of Economics, California Polytechnic State University); Ben Zissimos (Department of Economics, University of Exeter)
    Abstract: This paper develops a new model of a trade agreement that puts at center stage the competing interests between firms within a sector. Larger firms favor trade liberalization whereas smaller firms favor protection. Lobbying by firms for or against the agreement is modelled as an all-pay auction, thus incorporating the feature that binding contracts over contributions for policies cannot be written. A new motive for trade agreement formation is uncovered in this framework whereby governments' incentives to liberalize are driven by the lobbying process. If a proposed agreement is over non-tariff barriers then it always entails free trade. If a proposed agreement is over ariffs then it either entails free trade, which maximizes lobbying revenue, or the tariff revenue maximizing tariff. This outcome is supported by the surprising result that, off the equilibrium path, any tariff agreement that entails lobbying and positive tariffs yields lower expected revenue for the government than a free trade agreement involving no tariff revenue.
    Keywords: All-pay auction, firm heterogeneity, non-tariff barriers, tariffs, trade agreement
    JEL: F02 F12 F13 D44
  9. By: Julia Koralun-Bereznicka (University of Gdansk)
    Abstract: According to the leading theories of the firm the size-performance relation is not obvious neither in terms of its significance nor direction. The review of the previous empirical research also provides mixed evidence in the field. The aim of this study is to further explore this relationship by considering two potentially important factors – the country and industry specificity. In contrast to most studies, where the overall corporate performance often seems to be narrowed to some profitability aspects, this research takes into account a much wider range of corporate performance ratios. The way country and industry features affect size-performance relationship is analysed on a sample of private firms of three sizes from 13 industries across 9 EU countries in the period 2000-2010. The research methodology includes the analysis of variance, taxonomic method of aggregation, linear ranking and adjusted Rand’s measure used for comparing partitions. Findings provide evidence that the variability of the size-performance relationship is both country- and industry-dependent, with a slight dominance of the latter factor.
    Keywords: firm size; corporate performance; European Union; country factor; industry factor
    JEL: G30
  10. By: Straume, Hans-Martin (Department of Economics, University of Bergen, and Department of Economics, BI Norwegian Business School); Vårdal, Erling (Department of Economics, University of Bergen)
    Abstract: We use highly disaggregated Norwegian custom data of importing firms to investigate differences in obtained import prices in the period 2003-2009. In addition to the importing firm we are also able to identify the foreign exporter. The obtained import prices are related to firm characteristics as size of the firm, degree of specialization and also the chosen invoicing currency. Our focus is on one single product; fresh apples. We find a surprisingly high variation in import prices. It turns out that the firm specific variables, largeness and specialization, result in significantly lower import prices. In addition, if apples are priced in the currency of the exporter, he must accept a 13-18 per cent drop in the price he obtains. This effect proves to be highly significant.
    Keywords: import prices; firm specific factors; transaction data; tariff regimes
    JEL: F15 Q17
    Date: 2015–10–03
  11. 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
  12. By: Yashiv, Eran (Tel Aviv University)
    Abstract: U.S. CPS gross flows data indicate that in recessions firms actually increase their hiring rates from the pools of the unemployed and out of the labor force. Why so? The paper provides an explanation by studying the optimal recruiting behavior of the representative firm. This behavior is a function of the value of jobs, i.e., the expected present value of the marginal worker to the firm. Job values are estimated to be counter-cyclical in U.S. data, the underlying reason being the dynamic behavior of the labor share of GDP. The counter-cyclicality of hiring rates and job values, which may appear counter-intuitive, is shown to be consistent with well-known business cycle facts, such as pro-cyclical employment and pro-cyclical vacancy and job-finding rates (as well as job to job flows). The analysis emphasizes the difference between current labor productivity and the forward-looking concept of job value. The paper explains the high volatility of firm recruiting behavior, as well as the reduction in labor market fluidity in the U.S. over time, using the same framework.
    Keywords: firm recruitment, job values, business cycles, vacancies, hiring, labor market frictions, volatility, labor market fluidity
    JEL: E24 E32
    Date: 2015–09
  13. By: S0-Jin Lim (Korea Institute of Intellectual Property)
    Abstract: As the ratio of intangible assets in firm’s market value is increasing, the business strategy on knowledge assets including intellectual property rights is becoming the key factor determining firm’s performance and survival. This study empirically examines the impacts of IPR on the firm survival using 619,314 firm-year observations of South Korean manufacturing firms in 2000-2012, based on the assumption that those effects depend on the types, quantity, attributes of IPR and the growth stage and industries of a firm. We find that one unit increase of patent stock, design and trademark in firms could reduce the hazard ratio by 0.9%, 10.3% and 13.6% respectively. As to the attributes of patents, one unit increase of the numbers of claims, IPC classification and the ratio of joint applied patent could reduce the hazard ratio by 0.4%, 2.1%, and 5.3% respectively. And, in regard to the discriminative effects of those variables according to the growth stage of a business, the positive effect of the quantity of patent stock is decreasing and that of patent’s quality is increasing as a firm grows.
    Keywords: Intellectual Property Right, Firm Survival, Cox proportional hazard model, growth stage
  14. By: Hiebert, Paul; Schüler, Yves S.; Peltonen, Tuomas A.
    Abstract: We introduce a methodology to characterise financial cycles combining a novel multivariate spectral approach to identifying common cycle frequencies across a set of indicators, and a time varying aggregation emphasising systemic developments. The methodology is applied to 13 European Union countries as well a synthetic euro area aggregate, based on a quarterly dataset spanning 1970-2013. Results suggest that credit and asset prices share cyclical similarities, which, captured by a synthetic financial cycle, outperform the credit-to-GDP gap in predicting systemic banking crises on a horizon of up to three years. Financial cycles tend to be long, particularly in upswing phases and with important dispersion across country cases. Concordance of financial and business cycles is observed only 2/3 of the time. While a similar degree of concordance for financial cycles is apparent across countries, heterogeneity is high – whereby a cluster of countries tends to exhibit a high synchronisation in their financial cycle phases. JEL Classification: E30, E40, C54
    Keywords: financial cycle, macroprudential policy, power cohesion, spectral analysis
    Date: 2015–09
  15. By: Geoffrey Tate; Liu Yang
    Abstract: Internal labor markets facilitate cross-industry worker reallocation and collaboration, and the resulting benefits are largest when the markets include industries that utilize similar worker skills. We construct a matrix of industry pair-wise human capital transferability using information obtained from more than 11 million job changes. We show that diversifying acquisitions occur more frequently among industry pairs with higher human capital transferability. Such acquisitions result in larger labor productivity gains and are less often undone in subsequent divestitures. Moreover, acquirers retain more high skill workers and they exploit the real option to move workers from the target firm to jobs in other industries inside the merged firm. Overall, our results identify human capital as a source of value from corporate diversification and provide an explanation for seemingly unrelated acquisitions.
    Keywords: Corporate Diversification, Mergers and Acquisitions, Internal Labor Markets, Worker Mobility, Human Capital Transferability
    JEL: G34 J24 J62 M51 M54
    Date: 2015–09

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