nep-bec New Economics Papers
on Business Economics
Issue of 2016‒02‒04
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Organizational Belief, Managerial Vision, and International Trade By Jaewon Jung
  2. Beggar thy neighbor or beggar thy domestic firms? evidence from 2000-2011 Chinese customs data By Fatum, Rasmus; Liu, Runjuan; Tong, Jiadong; Xu, Jiayun
  3. Entry and exit in severe recessions: Lessons from the 2008–2013 Portuguese economic crisis By Carlos Carreira; Paulino Teixeira
  4. Offshoring Production while Offshoring Pollution? By Xiaoyang Li; Yue M. Zhou
  5. Data in Action: Data-Driven Decision Making in U.S. Manufacturing By Erik Brynjolfsson; Kristina McElheran
  6. The role of networks in firms' multi-characteristics competition and market-share inequality By Antonios Garas; Athanasios Lapatinas
  7. Collective Action Abroad: How Foreign Investors Organize Evidence from Foreign Business Associations In the Russian Federation By Michael Rochlitz
  8. Quota bonuses as localized sales bonuses By Bakó, Barna; Kálecz-Simon, András
  9. The Roles of Industry Idiosyncrasy, Cost Efficiency, and Risk in Internationalization: Evidence from the Insurance Industry By Biener, Christian; Eling, Martin; Jia, Ruo
  10. Cross-Ownership: A Device for Management Entrenchment? By Marc Levy; Ariane Szafarz
  11. Urban Immigrant Diversity and Inclusive Institutions By Abigail Cooke; Thomas Kemeny
  12. The Structure of the Global Reinsurance Market: An Analysis of Efficiency, Scale, and Scope By Biener, Christian; Eling, Martin; Jia, Ruo
  13. Shopping Time By Nicolas Petrovsky-Nadeau; Etienne Wasmer; Shutian Zeng
  14. Family Firm Succession By Eduardo L. Giménez; José Antonio Novo

  1. By: Jaewon Jung
    Abstract: In this paper, we develop a simple general-equilibrium trade model in which heterogeneous workers make an investment decision in acquiring advanced managerial skills and choose their optimal effort level based on their own individual organizational beliefs and CEO’s managerial vision. In doing so, we show how trade liberalization and/or changes in managerial vision of CEO may lead to non-monotonic income changes within firms due to the interaction between workers’ beliefs and CEO’s managerial vision. Whether a stronger (or weaker) CEO’s managerial vision benefits the firm or not depends on its extent relative to workers’ overall beliefs, and may involve some winners and losers within firms.
    Keywords: Organizational belief, Managerial vision, Organizational change, International trade
    JEL: F16
    Date: 2015–12
  2. By: Fatum, Rasmus (University of Alberta); Liu, Runjuan (University of Alberta); Tong, Jiadong (Nankai University); Xu, Jiayun (Tsinghua University)
    Abstract: The premise of beggar-thy-neighbor policies and currency wars is that currency depreciations lead to export growth. This premise, however, is far from validated as the existing economic literature largely either fails to find significant trade flow effects of currency fluctuations or finds that these effects are only minor. We revisit the question of whether currency fluctuations are systematically associated with trade flows using rich and unique firm level Chinese customs data on China-US trade over the 2000 to 2011 period that allows us to consider firm involvement in processing trade and firm dynamics in both export and import markets. Our firm-level based estimation of trade elasticities suggest that the China-US trade balance strongly responds to changes in the CNY/USD rate. This finding is particularly pronounced when we distinguish between ordinary and processing firms. Our results thus suggest that the influence of exchange rates on trade flows is stronger than previously thought and add insights to the policy debate on beggar-thy-neighbor policies and currency wars by, at least in principle, validating the underlying premise of such policies.
    JEL: F14 F31 F41
    Date: 2015–11–01
  3. By: Carlos Carreira (Faculty of Economics and GEMF, University of Coimbra, Portugal); Paulino Teixeira (Faculty of Economics and GEMF, University of Coimbra, Portugal)
    Abstract: Under cleansing, productivity-enhancing reallocation is expected to be accelerated in recessions. In this paper we contribute to the analysis of one component of the National Systems of Entrepreneurship (namely capital market frictions) by showing that in the extreme scenario of deep recession efficiency in resource reallocation can actually be reduced. Using data from the pronounced Portuguese economic crisis, we do find a spike in firm exit in 2008–2012 vis-à-vis the 2004–2007 pre-crisis period, and a substantial increase in job destruction as well. But we did not find any strong evidence that job reallocation is countercyclical, while a non-negligible fraction of high-productivity firms actually shut down. In turn, our selected proxies for strictness in credit markets reveal that in deep recessions they are seemingly associated with increased firm exit and lower employment creation. Taken in round, our results show that credit market stringency in conjunction with an unfavourable economic cycle is likely to generate a long-lasting destructive process.
    Keywords: Entry and exit; firm productivity; aggregate productivity growth; financial constraints; severe recessions.
    JEL: D24 L11 L25 L26 L60
    Date: 2016–01
  4. By: Xiaoyang Li; Yue M. Zhou
    Abstract: We combine international trade data from the U.S. Census Bureau with Toxics Release Inventory data from the Environmental Protection Agency to investigate the relationship between U.S. firms’ imports from low-wage countries (LWCs) and toxic emissions by their domestic plants. We find that plants release less toxic emissions on American soil when their parent firm imports more from LWCs. According to our estimates, when a plant’s parent firm increases its share of imports from LWCs by 10 percentage points, the plant’s toxic emissions on American soil decrease by about 4%. These effects are stronger for plants facing greater institutional pressures on environmental performance, such as plants located in dirtier U.S. counties. In addition, goods imported by U.S. firms from LWCs are in more pollution-intensive industries than goods imported from the rest of the world. Taken together, our results provide the first large-sample empirical evidence that U.S. firms offshore both production and pollution to the developing world.
    Keywords: environment, offshore, institutions
    Date: 2016–02
  5. By: Erik Brynjolfsson; Kristina McElheran
    Abstract: Manufacturing in America has become significantly more data-intensive. We investigate the adoption, performance effects and organizational complementarities of data-driven decision making (DDD) in the U.S. Using data collected by the Census Bureau for 2005 and 2010, we observe the extent to which manufacturing firms track and use data to guide decision making, as well as their investments in information technology (IT) and the use of other structured management practices. Examining a representative sample of over 18,000 plans, we find that adoption of DDD is earlier and more prevalent among larger, older plants belonging to multi-unit firms. Smaller single-establishment firms adopt later but have a higher correlation with performance than similar non-adopters. Using a fixed-effects estimator, we find the average value-added for later DDD adopters to be 3% greater than non-adopters, controlling for other inputs to production. This effect is distinct from that associated with IT and other structured management practices and is concentrated among single-unit firms. Performance improves after plants adopt DDD, but not before – consistent with a causal relationship. However, DDD-related performance differentials decrease over time for early and late adopters, consistent with firm learning and development of organizational complementarities. Formal complementarity tests suggest that DDD and high levels of IT capital reinforce each other, as do DDD and skilled workers. For some industries, the benefits of DDD adoption appear to be greater for plants that delegate some decision making to frontline workers.
    Date: 2016–01
  6. By: Antonios Garas; Athanasios Lapatinas
    Abstract: We develop a location analysis spatial model of firms' competition in multi-characteristics space, where consumers' opinions about the firms' products are distributed on multilayered networks. Firms do not compete on price but only on location upon the products' multi-characteristics space, and they aim to attract the maximum number of consumers. Boundedly rational consumers have distinct ideal points/tastes over the possible available firm locations but, crucially, they are affected by the opinions of their neighbors. Our central argument is that the consolidation of a dense underlying consumers' opinion network is the key for the firm to enlarge its market-share. Proposing a dynamic agent-based analysis on firms' location choice we characterize multi-dimensional product differentiation competition as adaptive learning by firms' managers and we argue that such a complex systems approach advances the analysis in alternative ways, beyond game-theoretic calculations.
    Date: 2016–01
  7. By: Michael Rochlitz (National Research University Higher School of Economics)
    Abstract: What role can collective action by foreign investors play in an environment characterized by incomplete institutions? We study this question by looking on foreign business associations in the Russian Federation. By interviewing 17 foreign business associations and conducting an online survey of their member firms, we find that business associations play an important welfare-enhancing role in providing a series of support and informational services. However, they do not play a significant role in lobbying the collective interests of their member firms, especially in the current political context in Russia where since the start of the Ukraine crisis the business community seems to have suffered a general loss of influence on political decision making
    Keywords: collective action; business associations; lobbying
    JEL: D71 D72
    Date: 2016
  8. By: Bakó, Barna; Kálecz-Simon, András
    Abstract: Managerial bonus schemes and their effects on firm strategies and market outcomes are extensively discussed in the literature. Though quota bonuses are not uncommon in practice, they have not been analysed so far. In this article we compare quota bonuses to profit-based evaluation and sales (quantity) bonuses. In a duopoly setting with independent demand shocks we find that under certain circumstances choosing quota bonuses is a dominant strategy. This may explain the widespread use of quota bonuses in situations where incentive problems are relevant.
    Keywords: strategic delegation, oligopoly, managerial incentives
    JEL: C73 D21 D43 L13
    Date: 2015–12–23
  9. By: Biener, Christian; Eling, Martin; Jia, Ruo
    Abstract: A central matter of dispute in the internationalization literature is the existence and shape of a systematic relationship between the degree of internationalization and firm performance (I-P relationship). Considering the global insurance industry, we show that the I-P relationship depends on the industry’s idiosyncrasies and on the geographical scope of internationalization. The life insurance industry’s idiosyncrasies lead to relatively high liability of foreignness that compromise cost efficiency, and relatively low risk reduction benefits of globalization. Therefore, we observe an overall negative impact of globalization on life insurers’ performance. However, the nonlife insurance industry’s idiosyncrasies render this relationship insignificant.
    Keywords: Industry Dependency, Liability of Foreignness, Risk Reduction, Data Envelopment Analysis, Financial Services
    Date: 2016–01
  10. By: Marc Levy; Ariane Szafarz
    Abstract: By artificially inflating capital and creating own shares, cross-ownership can be a key device for managerial entrenchment. This paper proposes a game-theoretical method to measure the extent of shareholder expropriation through cross-ownership. By properly accounting for cross-ownership linkages, we show how managers can seize indirect voting rights, and so insulate their firms from outside control. Significant examples of cross-ownership are found not only in civil law countries, but also in the U.S. mutual fund industry. We apply our method to Germany’s Allianz Group. This paper paves the way to better regulatory appraisal of management entrenchment through cross-ownership.
    Keywords: Corporate governance; corporate control; cross-ownership; shareholder expropriation; Allianz Group
    JEL: G32 G34 C71 D72 C44 D74
    Date: 2016–01–21
  11. By: Abigail Cooke; Thomas Kemeny
    Abstract: Recent evidence suggests that rising immigrant diversity in cities offers economic benefits, including improved innovation, entrepreneurship and productivity. One potentially important but underexplored dimension of this relationship is how local institutional context shapes the benefits firms and workers receive from the diversity in their midst. Theory suggests that institutions can make it less costly for diverse workers to transact, thereby catalyzing the latent bene ts of heterogeneity. This paper tests the hypothesis that the effects of immigrant diversity on productivity will be stronger in locations featuring more “inclusive" institutions. It leverages comprehensive longitudinal linked employer-employee data for the U.S. and two distinct measures of inclusive institutions at the metropolitan area level: social capital and pro- or anti-immigrant ordinances. Findings confirm the importance of institutional context: in cities with low levels of inclusive institutions, the benefits of diversity are modest and in some cases statistically insignificant; in cities with high levels of inclusive institutions, the benefits of immigrant diversity are positive, significant, and substantial. Moreover, natives residing in cities that have enacted laws restricting immigrants enjoy no diversity spillovers whatsoever, while immigrants in these cities continue to receive a diversity bonus. These results confirm the economic significance of urban immigrant diversity, while suggesting the importance of local social and economic institutions.
    Date: 2016–01
  12. By: Biener, Christian; Eling, Martin; Jia, Ruo
    Abstract: We estimate economies of scale and scope as well as cost efficiency to explain the structure of the global reinsurance market, where large reinsurers dominate, but both diversified and specialized reinsurers play important roles. The costs and benefits of size and product diversification play significant roles in the reinsurance industry as risk diversification is at the heart of the industry’s business model. We find that reinsurers with total assets less than USD 2.9 billion exhibit scale economies, while those with total assets greater than USD 15.5 billion do not. Large reinsurers are characterized by high cost efficiency; small reinsurers exhibit superior efficiency only when they are specialized. The evidence is in line with the efficient structure hypothesis and suggests an optimal size range for reinsurance firms from which the current market structure results.
    Keywords: Insurance, Data Envelopment Analysis, Cost Efficiency, Market Structure, Economies of Scale, Economies of Scope
    JEL: G22 L11 L25
    Date: 2016–01
  13. By: Nicolas Petrovsky-Nadeau (Tepper School of Business); Etienne Wasmer (Département d'économie); Shutian Zeng
    Abstract: There is a renewed interest in macroeconomic theories of search frictions in the goods market that help solve quantitative puzzles on amplification and persistence of GDP, sales, inventory and advertisement. This requires a deeper understanding of the cyclical properties of the intensive margins of search in this market. Using the American Time Use Survey we construct an indicator of shopping time. It includes both searching and purchasing goods and is based on 25 time use categories (out of more than 400 categories). We find that average time spent shopping declined in the aggregate over the period 2008-2010 compared to 2005-2007. The decline was largest for the unemployed who went from spending more time shopping for goods than the employed to roughly the same, or even less, time. Cross-state and individual regressions indicate procyclical consumer shopping time in the goods market. This evidence poses a challenge for models in which price comparisons are a driver of business cycles.
    Keywords: Goods market search; Time allocation; American Time Use Survey; Business cycles
    JEL: D12 E32 J22
    Date: 2015–05
  14. By: Eduardo L. Giménez (Universidade de Vigo); José Antonio Novo (Universidade da Coruña)
    Abstract: We present a theory of family firm succession in which the incumbent regards a family member as a potential successor, as well as an outside candidate. Our setting considers that the incumbent can spend resources on training the family manager, as a key element in the intra-family transmission. The choice is explained in terms of quality of the candidates, monitoring costs, effectiveness of the training process and amenities. Our results account for observed findings, such as the partial retirement, the underperformance after succession, or the selection of a non-family manager only if he is markedly better than the family candidate.
    Keywords: Family firm, succession
    JEL: M1 M5
    Date: 2015–12

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