nep-bec New Economics Papers
on Business Economics
Issue of 2015‒12‒08
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Where Has All the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S. By Ryan A. Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
  2. Imperfect Certification under Cournot Duopoly By Charu Grover; Sangeeta Bansal
  3. Diversification and firm performance: A study of Indian manufacturing firms By Ravichandran, Archana; Bhaduri, Saumitra
  4. Learning Entrepreneurship from other Entrepreneurs? By Luigi Guiso; Luigi Pistaferri; Fabiano Schivardi
  5. The Role of Services in Enhancing Indian Manufacturing Exports: A Firm Level Analysis, 2000-01 to 2011-12 By Sonia Mukherjee
  6. Assessing European Firms’ Exports and Productivity Distributions: The CompNet Trade Module By Antoine Berthou; Emmanuel Dhyne; Matteo Bugamelli; Ana-Maria Cazacu; Calin-Vlad Demian; Peter Harasztosi; Tibor Lalinsky; Jaanika Meriküll; Filippo Oropallo; Ana Cristina Soares
  7. Relativity and asymmetry in distance. The role of strategic distance in the internationalization decisions of Brazilian and Italian firms By Giovanna Magnani; Antonella Zucchella; Dinorà Eliete Floriani
  8. Internalizing Global Value Chains: A Firm-Level Analysis By Laura Alfaro; Pol Antras; Davin Chor; Paola Conconi
  9. Operating Leverage over the Business Cycle By Arnab Bhattacharjee, Chris Higson, Sean Holly
  10. Net employment growth by firm size and age in Italy By Francesco Manaresi
  11. Moving people with ideas - innovation inter-regional mobility and firm heterogeneity By Riccardo Crescenzi; Luisa Gagliardi
  12. The weighted average cost of capital over the lifecycle of the firm: is the overinvestment problem of mature firms intensified by a higher WACC? By Carlos S. García; Jimmy A. Saravia; David A. Yepes
  13. European Energy Market Integration: Efficiency Improvements in Electricity Producing Firms By Ferran Armada Ramírez
  14. Shifts of Distortion and Corruption over Local Political Cycles in China By Shawn Chen
  15. Optimal Acquisition Strategies in Unknown Territories By Koska, Onur A.; Staehler, Frank
  16. Is bread gained by deceit sweet to a man? Corruption and firm efficiency By Hanousek, Jan; Shamshur, Anastasiya; Tresl, Jiri
  17. Heterogeneity of markups at the firm level and changes during the great recession: the case of spain By Cristina Fernández; Aitor Lacuesta; José Manuel Montero; Alberto Urtasun

  1. By: Ryan A. Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
    Abstract: The pace of business dynamism and entrepreneurship in the U.S. has declined over recent decades. We show that the character of that decline changed around 2000. Since 2000 the decline in dynamism and entrepreneurship has been accompanied by a decline in high-growth young firms. Prior research has shown that the sustained contribution of business startups to job creation stems from a relatively small fraction of high-growth young firms. The presence of these high-growth young firms contributes to a highly (positively) skewed firm growth rate distribution. In 1999, a firm at the 90th percentile of the employment growth rate distribution grew about 31 percent faster than the median firm. Moreover, the 90-50 differential was 16 percent larger than the 50-10 differential reflecting the positive skewness of the employment growth rate distribution. We show that the shape of the firm employment growth distribution changes substantially in the post-2000 period. By 2007, the 90-50 differential was only 4 percent larger than the 50-10, and it continued to exhibit a trend decline through 2011. The reflects a sharp drop in the 90th percentile of the growth rate distribution accounted for by the declining share of young firms and the declining propensity for young firms to be high-growth firms.
    Date: 2015–11
  2. By: Charu Grover (Centre for International Trade and Development,Jawaharlal Nehru University); Sangeeta Bansal (Centre for International Trade and Development,Jawaharlal Nehru University)
    Abstract: Environmental quality is often a credence good and consumers are unable to distinguish between green and brown products. The paper aims to investigate the role of certification in providing information about product quality and reducing market inefficiencies when the certification process is imperfect. We consider a duopoly in a vertically differentiated product model where firms compete in quantities. The papers shows that in the absence of labelling, the brown firm drives out the green firm if the cost of producing green product is sufficiently high. If both firms produce positive quantities in the market, the green firm covers a higher market share and obtains larger revenue. We then characterise pooling and separating equilibrium under imperfect certification contingent on certification fee. The paper shows that under imperfect certification, it is not optimal to subsidize certification.
  3. By: Ravichandran, Archana; Bhaduri, Saumitra
    Abstract: The advantages and disadvantages of diversification and its impact on productivity or performance of a firm have been debated upon by academics and business professionals all over, although views on the topic still differ widely. While popular views are that related diversification increases value and unrelated diversification decreases value, the results of research conducted on the effects of overall diversification (without distinguishing between related and unrelated diversification) on productivity are of conflicting nature. This paper focuses on this relationship in the context of the Indian manufacturing sector. Along with this, it also expounds on the existence of an optimal diversification point for the Indian context. Data used is obtained from CMIE Prowess for the period 2003 to 2014 and standard econometric analysis on panel data is carried out to find the stated relationship. Tobin’s q is used as a measure of performance of the firm. The results show that highly diversified firms perform poorly on account of vertical diversification while horizontal diversification has a positive effect on performance.
    Keywords: productivity, diversification, Tobin’s q, related, unrelated
    JEL: D22 L25
    Date: 2015–06
  4. By: Luigi Guiso (EIEF); Luigi Pistaferri (Stanford University); Fabiano Schivardi (Bocconi University and EIEF)
    Abstract: We document that individuals who grew up in areas with high density of firms are more likely, as adults, to become entrepreneurs, controlling for the density of firms in their current location. Conditional on becoming entrepreneurs, the same individuals are also more likely to be successful entrepreneurs, as measured by business income or firm productivity. Strikingly, firm density at entrepreneur’s young age is more important than current firm density for business performance. These results are not driven by better access to external finance or intergenerational occupation choices. They are instead consistent with entrepreneurial capabilities being at least partly learnable through social contacts. In keeping with this interpretation, we find that entrepreneurs who at the age of 18 lived in areas with a higher firm density tend to adopt better managerial practices (enhancing productivity) later in life.
    Date: 2015
  5. By: Sonia Mukherjee (Centre for International Trade and Development,Jawaharlal Nehru University)
    Abstract: In this paper, we try to examine and assess the contribution of services towards India’s manufacturing exports at the firm level. In other words, the role of services in shaping the international competiveness of the Indian Manufacturing Sector at the firm level is examined. Services are instrumental in connecting to the world market and can help firms to differentiate their products. However, only bits and pieces of the relation between services and exports have been analyzed in the earlier literature. Most of the earlier studies relating to services have explored the link between services and Total Factor Productivity. The relation between services and exports has not been explored at the firm level in case of India. This also gives a justification for conducting the present study. With now firm level databases available, it allows us to explore this part in details. For exploring this link, the firm level data was collected from the Centre for Monitoring of The Indian Economy (Prowess Database) for the years 2000-01 to 2011-12. The Manufacturing firms had used different types of services according to their needs and the expenditure for the all the different services were not the same. The expenses incurred by the manufacturing firms for services like business services, repairs and maintenance, Professional services, Research & Development and others etc. were added together to get total expenses on the services variable. Two alternative econometric methods (Panel Regression method and Tobit model) were used in our study. The findings confirm that services have contributed to enhanced export competitiveness of the Indian manufacturing firms. The paper looks at the firm specific factors like firm size, age, previous years export performance, group versus non-group, labor productivity and services that affected the export performance of the Indian manufacturing firms. The overall results show that the firm specific factors such as firm size, extent of use of services, group versus non-group firms, and previous years export performance played a positive role in improving the Indian manufacturing exports.
  6. By: Antoine Berthou; Emmanuel Dhyne; Matteo Bugamelli; Ana-Maria Cazacu; Calin-Vlad Demian; Peter Harasztosi; Tibor Lalinsky; Jaanika Meriküll; Filippo Oropallo; Ana Cristina Soares
    Abstract: This paper provides a new cross-country evaluation of competitiveness, focusing on the linkages between productivity and export performance among European economies. We use the information compiled in the Trade module of CompNet to establish new stylized facts regarding the joint distributions of the firm-level exports performance and productivity in a panel of 15 countries, 23 manufacturing sectors during the 2000’s. We confirm that exporters are more productive than non-exporters. However, this productivity premium is rising with the export experience of firms, with permanent exporters being much more productive than starters. At the intensive margin, we show that both the level and the growth of firm-level exports rise with firm productivity, and that the bulk of aggregate exports in each country are made by few highly productive firms. Finally, we show that during the crisis, the growth of exports by high productive firms sustained the current account adjustment of European “stressed” economies. This last result confirms that the shape of the productivity distribution within each country can have important consequences from the point of view of the dynamics of aggregate trade patterns.
    JEL: F10 F14
    Date: 2015
  7. By: Giovanna Magnani (Department of Economics and Management, University of Pavia); Antonella Zucchella (Department of Economics and Management, University of Pavia); Dinorà Eliete Floriani (University of Vale do Itajaí)
    Abstract: Distance studies often assume geographic distance in absolute terms rather than relative to firms’ perceptions, and symmetric between two countries. By pair-wise comparing six case studies of Brazilian and Italian ventures, we address this gap. We find that geographic distance is relative to a firm’s prospective internationalisation plans and we identify a considerable asymmetry in perceptions of distance. Overall, our findings seem to go against the predictions of the stages models of internationalization which envision internationalization decisions based on proximity and similarity of markets, rather firms leverage on market dissimilarities and consider the strategic distance of target markets, in addition to psychic, institutional, geographic, and cultural distances.
    Keywords: distance; relativity; asymmetry; strategic markets; similarity.
    Date: 2015–11
  8. By: Laura Alfaro; Pol Antras; Davin Chor; Paola Conconi
    Abstract: In recent decades, technological progress in information and communication technology andfalling trade barriers have led firms to retain within their boundaries and in their domesticeconomies only a subset of their production stages. A key decision facing firms worldwide is theextent of control to exert over the di↵erent segments of their production processes. Building onAntr`as and Chor (2013), we describe a property-rights model of firm boundary choices alongthe value chain. To assess the evidence, we construct firm-level measures of the upstreamness ofintegrated and non-integrated inputs by combining information on the production activities offirms operating in more than 100 countries with Input-Output tables. In line with the model’spredictions, we find that whether a firm integrates upstream or downstream suppliers dependscrucially on the elasticity of demand for its final product. Moreover, a firm’s propensity tointegrate a given stage of the value chain is shaped by the relative contractibility of the stageslocated upstream versus downstream from that stage. Our results suggests that contractualfrictions play an important role in shaping the integration choices of firms around the world.
    Keywords: global value chains; sequential production; incomplete contracts
    JEL: F14 F23 D23 L20
    Date: 2015–09
  9. By: Arnab Bhattacharjee, Chris Higson, Sean Holly
    Abstract: Operating leverage describes the extent to which a firm’s operating costs are fixed in the short run. The effect of operating leverage is to amplify the impact on profit of a change in revenues; an effect which is further amplified by financial leverage and by asymmetry in the tax system. In this paper we provide empirical estimates of operating leverage at the firm level, using a long panel of data on UK quoted firms. We report sectoral differences in operating leverage around the business cycle, and show that these can be partly explained in terms of costly labour adjustment and asymmetric price adjustment.
    Keywords: operating margin, panel data, fixed and flexible costs, business cycles
    JEL: E32 D4 G30
    Date: 2015–11–24
  10. By: Francesco Manaresi (Bank of Italy)
    Abstract: We study how net employment growth rates differ by firm age and size. For this purpose, we exploit a long panel dataset collecting information for all Italian private firms with at least one employee. We find that firm size is not a crucial determinant of firm growth, once age is controlled for. Firms in their early years of life (up to 3 years) display higher growth rates and slightly higher exit rates than older firms. This up-or-out dynamic of Italian firms seem subdued if compared with the US, the other country for which a similar analysis is available. We also exploit the long time series to identify which types of firms are hit the most during economic downturns. Results show that older firms reduce net employment growth the most. The impact on younger firms seem partially cushioned by stronger selection at entry. Conditional on age, size turns out not to be significantly correlated with the drop in net employment growth rates during downturns.
    Keywords: employment growth, firm size, firm age
    JEL: D22 L25
    Date: 2015–11
  11. By: Riccardo Crescenzi; Luisa Gagliardi
    Abstract: This paper looks at the link between inter-regional mobility, innovation and firms’ behavioural heterogeneity in their reliance on localised external sources of knowledge. By linking patent data (capturing inventors’ inter-regional mobility) with firm-level data (providing information on firms’ innovation inputs and behaviour) a robust identification strategy makes it possible to shed new light on the geographical mobility-innovation nexus. The analysis of English firms suggests that firm-level heterogeneity – largely overlooked in previous studies - is the key to explain the innovation impact of inter-regional mobility over and above learning-by-hiring mechanisms. A causal link between inflows of new inventors into the local labour market and innovation emerges only for firms that make the use of external knowledge sources an integral part of their innovation strategies.
    Keywords: innovation; labour mobility; inter-regional migration; spillovers
    JEL: J61 O15 O31 R23
    Date: 2015–04
  12. By: Carlos S. García; Jimmy A. Saravia; David A. Yepes
    Abstract: Abstract: Firm lifecycle theory predicts that the Weighted Average Cost of Capital (WACC) will tend to fall over the lifecycle of the firm (Mueller, 2003, p. 80-81). However, given that previous research finds that corporate governance deteriorates as firms get older (Mueller and Yun, 1998; Saravia, 2014) there is good reason to suspect that the opposite could be the case, that is, that the WACC is higher for older firms. Since our literature review indicates that no direct tests to clarify this question have been carried out up till now, this paper aims to fill the gap by testing this prediction empirically. Our findings support the proposition that the WACC of younger firms is higher than that of mature firms. Thus, we find that the mature firm overinvestment problem is not intensified by a higher cost of capital, on the contrary, our results suggest that mature firms manage to invest in negative net present value projects even though they have access to cheaper capital. This finding sheds new light on the magnitude of the corporate governance problems found in mature firms.
    Keywords: WACC, firm lifecycle, corporate governance, overinvestment.
    JEL: D23 G12 G30 G31 G34
    Date: 2015–11–20
  13. By: Ferran Armada Ramírez (Universitat de Barcelona)
    Abstract: In this paper, we review and use different methods to measure and compare efficiency scores in energy producing plants. In particular, we use non-parametric and parametric techniques. We focus our attention in electricity producing power plants on eighteen European countries, as well as in thirty energy systems as a whole. This paper also state some results such as that efficiency has widely improved in the period studied, but these positive results are not homogeneous among energy systems or firms. We present some evidence that the greatest part of energy improvement is the consequence of the technological shift and is not necessarily due to alternative factors, such as market integration, increasing competition, or other firm-level decisions.
    Keywords: Market integration, Efficiency, Data Envelopment Analysis, Energy Market, Europe, Industrial Organization.
    JEL: Q40 G14 Q41 Q48
    Date: 2015
  14. By: Shawn Chen (Business School, University of Western Australia)
    Abstract: Do corrupt firms create negative externality and hurt less corrupt ones? I answer this question by exploring cross-industry distribution of taxation, credit, and corruption over local political cycles in China. It is known that capital-intensive firms are more likely to be corrupt. The paper argues that preferential treatment in taxation or credit allocation towards corrupt firms must result in detrimental treatment against others when governments face resource constraints, and that corruption is generally conducted through political network that expands and shrinks over political cycles. Using the variation in turnover of secretaries of the Chinese Communist Party in 275 prefectures between 2000 and 2007, I find that, as the tenure of the secretaries increases, enforcement of both VAT and corporate income tax as well as access to credit all change in favour of capital-intensive industries but to the detriment of labour-intensive counterparts. I then use the firm-level Entertainment and Travel Cost (ETC) as a proxy of corruption and find that the variation of cross-industry distribution of ETC over secretaries' tenure is in line with the variation in taxation and credit allocation. The finding suggests that corruption may not reduce overall distortions in the economy but only shifts distortions across economic agents.
    Date: 2015
  15. By: Koska, Onur A.; Staehler, Frank
    Abstract: This paper investigates the optimal acquisition strategy of a foreign investor, who wants to acquire one out of two local firms, under incomplete information. The response to acquisition offers is also a signal on firm productivity, affecting future competition. We identify a competition effect (firms compete for acquisition) and a revelation effect (firms reveal their productivities). These effects reduce the rejection profits and increase the acceptance probability. If the investor makes simultaneous offers, the revelation effect is a potential threat because a firm may signal low productivity, but may not be acquired. If, however, the investor makes offers sequentially, this threat does not exist, making sequential offers the optimal acquisition strategy.
    Keywords: Multinational Firms; Acquisition; Incomplete Information
    JEL: F23 G34
    Date: 2014–04–14
  16. By: Hanousek, Jan; Shamshur, Anastasiya; Tresl, Jiri
    Abstract: We study the effects of corruption on firm efficiency using a unique comprehensive dataset of private firms from 14 Central and Eastern European countries for the period from 2000 to 2013. We find that an environment characterized by a high level of corruption has an adverse effect on firm efficiency. This effect is amplified for firms with a lower propensity to behave corruptly, i.e. foreign-controlled firms and firms managed by female CEOs, while domestically-owned firms and firms with male CEOs are not penalized. At the same time, an environment characterized by considerable heterogeneity in perception of corruption is associated with an increase in firm efficiency. This effect is particularly strong for foreign firms from low-corruption countries, while no effect is observed for firms managed by female CEO.
    Keywords: CEO; corruption; efficiency; Europe; ownership structure; panel data; stochastic frontier
    JEL: C33 D24 G32 L60 L80 M21
    Date: 2015–11
  17. By: Cristina Fernández (Banco de España); Aitor Lacuesta (Banco de España); José Manuel Montero (Banco de España); Alberto Urtasun (Banco de España)
    Abstract: We broaden the conceptual framework of estimating markups at the sectoral level developed by Roeger (1995), and extended by Crépon et al. (2005) with labour market imperfections, to account for firm-level heterogeneity derived from differences in productivity. We estimate this model with a comprehensive panel of Spanish non-financial corporations for the period 2001-2007 to find that perfect competition is widely rejected in the data. More interestingly, within each sector, firms with higher productivity present higher markups. Further, we use this empirical setting to estimate changes in firm-level markups over the course of the crisis (2008/2012). Our results indicate that for around 50% of sectors average markups increased, following a decrease in the number of firms, while for around 35% of industries the relevance of within-sector markup heterogeneity decreased at the same time that the variance of within-sector TFP increased. This last result suggests that the simple changes in the number and composition of competing firms cannot explain within-sector markups and we require additional factors to account for recent developments. For instance, we provide evidence that both an increase in consumer product substitutability and in fixed entry costs during the crisis might be a good explanation.
    Keywords: markups, production function, market power, heterogeneity
    JEL: C23 C26 D24 E31 L11 L16
    Date: 2015–12

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