nep-bec New Economics Papers
on Business Economics
Issue of 2016‒02‒29
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Business Practices in Small Firms in Developing Countries By McKenzie, David; Woodruff , Christopher
  2. Mobile information and communication technologies, flexible work organization and labor productivity: Firm-level evidence By Viete, Steffen; Erdsiek, Daniel
  3. The impact of contract enforcement costs on outsourcing and aggregate productivity By Johannes Boehm
  4. Empower Workers to Innovate and Entrepreneurship: Raison d'être of Successful Workers Cooperatives By Sapovadia, Vrajlal
  5. Contracting with Feedback By Lin, Tse-chun; Liu, Qi; Sun, Bo
  6. Vertical organization of production and firm growth By Fabio Pieri
  7. Unobservable investments, limited commitment, and the curse of firm relocation By Martin Pollrich; Robert Schmidt
  8. Search and Matching Frictions and Business Cycle Fluctuations in Bulgaria By Aleksandar Vasilev
  9. Unraveling Firms: Demand, Productivity and Markups Heterogeneity By Emanuele Forlani; Ralf Martin; Giordano Mion; Mirabelle Muûls
  10. Market Structure and Competition in Transition:Results from a Spatial Analysis By Martin Labaj; Karol Morvay; Peter Silanic; Christoph Weiss; Biliana Yontcheva
  11. Trade Competition, Technology and Labor Re-allocation By Bahar Baziki, Selva; Ginja, Rita; Borota Milicevic, Teodora
  12. Reconciling Full-Cost and Marginal-Cost Pricing By Gramlich, Jacob P.; Ray, Korok
  13. Small world of inter-firm network and firm's acquisition behaviour By Shreya Biswas

  1. By: McKenzie, David (World Bank); Woodruff , Christopher (Department of Economics, University of Warwick)
    Abstract: Management has a large effect on the productivity of large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, recordkeeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria and Sri Lanka. We show that variation in business practices explains as much of the variation in outcomes – sales, profits and labor productivity and TFP – in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The association of business practices with firm outcomes is robust to including numerous measures of the owner’s human capital. We find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices.
    Keywords: business practices; small enterprises; productivity; management
    JEL: O12 L26 M20 O17 M53
    Date: 2016
  2. By: Viete, Steffen; Erdsiek, Daniel
    Abstract: Mobile information and communication technologies (ICT) have started to diffuse rapidly in the business sector. This study tests for the complementarity between the use of mobile ICT and organizational practices providing workplace flexibility. We hypothesize that mobile ICT can create value if organizational practices grant employees more autonomy over when, where and how to perform work-related tasks. Our data set comprises 1132 German service firms and provides information on the share of employees that have been equipped with mobile devices which allow for wireless internet access, such as notebooks, tablets and smartphones. Workplace flexibility is measured in terms of firms' use of working from home arrangements, working time accounts, and trust-based working time. Within a production function framework, we find that the use of mobile ICT is associated with a productivity premium only in firms granting workplace flexibility by means of trust-based working time. Robustness checks suggest that our results are not driven by ICT-skill complementarity or by complementarity of mobile ICT with multiple alternative modern management practices.
    Keywords: Mobile Information and Communication Technologies,Organizational Practices,Labor Productivity,Complementarity,Firm-Level Data
    JEL: D22 L22 M10 O33
    Date: 2015
  3. By: Johannes Boehm
    Abstract: Legal institutions affect economic outcomes, but how much? This paper documents how costly supplier contract enforcement shapes firm boundaries, and quantifies the impact of this transaction cost on aggregate productivity and welfare. I embed a contracting game between a buyer and a supplier in a general-equilibrium model. Contract enforcement costs lead suppliers to under produce. Thus, firms will perform more of the production process in-house instead of outsourcing it. On a macroeconomic scale, in countries with slow and costly courts, firms should buy relatively less inputs from sectors whose products are more specific to the buyer-seller relationship. I present reduced-form evidence for this hypothesis using a novel measure of relationship-specificity, which I construct from microdata on US case law. I then structurally estimate my model, and perform welfare counterfactuals. Setting enforcement costs to US levels would increase real income by an average of 7.5 percent across all countries, and by an average of 15.3 percent across low-income countries. Hence, transaction costs and the determinants of firm boundaries are important for countries' aggregate level of development.
    Keywords: contract enforcement costs; contracting frictions; transaction costs; outsourcing; aggregate productivity
    JEL: D23 F11 L22 O4
    Date: 2015–11
  4. By: Sapovadia, Vrajlal
    Abstract: The study critically analyses selected Indian workers cooperatives to find reasons over time of its success or failures. Worker cooperatives flourish in many industries and regions, where decisions are made democratically by workers who also act as entrepreneurs, managers and members. By value creation it tends to provide employment, remains accountable to community. The entrepreneurs are risk takers but who innovate to satisfy ever-changing consumers’ needs succeed through well managed business. The study has qualitative research design employed on variety of workers cooperatives. It looks at phenomena of business cycle, value creation cum distribution, overlapping multiple roles of workers, management practices, innovation & product life cycle, consumer satisfaction vis-à-vis business performance. We attempts to explore and interpret dynamism of activities and interactions among key stakeholders to ascertain success factors. We find that continuous innovation and entrepreneur spirit is the key to success. The finding may help to advance socio-economic enterprises.
    Keywords: Workers Cooperative, Labour Cooperative, Industrial Cooperative
    JEL: A12 A3 L00
    Date: 2015–01–10
  5. By: Lin, Tse-chun (University of Hong Kong); Liu, Qi (Peking University); Sun, Bo (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We study the effect of financial market conditions on managerial compensation structure. First, we analyze the optimal pay-for-performance in a model in which corporate decisions and firm value are both endogenous to trading due to feedback from information contained in stock prices. In a less frictional financial market, the improved information content of stock prices helps guide managerial decisions, and this information substitutes out part of the direct incentive provision from compensation contracts. Thus, the optimal pay-for-performance is lowered in response to reductions in market frictions. Second, we test our theory using two quasi-natural experiments and find evidence that is consistent with the theory. Our results indicate that the financial market environment plays an important role in shaping CEO compensation structure.
    Keywords: Feedback effect; CEO compensation; Transaction costs; Reg-SHO Pilot program; Decimalization
    JEL: G30 J33
    Date: 2015–08–13
  6. By: Fabio Pieri
    Abstract: This paper empirically explores if different vertical organizational forms (i.e. vertical integration versus dis-integration) give rise to unlike growth ''behaviors'' within the same industry. An econometric analysis is conducted in a sample of around 500 Italian machine tool (MT) builders for the period 1998-2007, implementing instrumental variables to control for the endogeneity of the organizational form in the relation. Ceteris paribus, vertically integrated firms result to be characterized by a less dispersed distribution of growth rates than their dis-integrated counterparts. Several concurring factors, such as adjustment costs, organizational slacks and a better management of fluctuations in the markets of intermediate and final products, may explain the more ÒstableÓ growth profile of vertically integrated firms. By means of analyzing how different organizational forms map into the distribution of output growth rates, this work provides insight into the firm dynamics in a mature industry in which both vertically integrated and dis-integrated firms coexist.
    Keywords: Vertical integration, Firm growth, Variance-vertical integration scaling relation, Instrumental variables, Quantile regression, Italian machine tool industry
    JEL: D22 L23 L24 L26 L64
    Date: 2016
  7. By: Martin Pollrich (Humboldt-Universitaet zu Berlin, Department of Economics); Robert Schmidt (Humboldt-Universitaet zu Berlin, Department of Economics)
    Abstract: Changes in market conditions or policies can induce firms to relocate. Countries may intervene by subsidizing domestic rms. We analyze a dynamic game where a regulator oers contracts to avert relocation of a rm in each of two periods. The firm can undertake an investment that is unobservable to the regulator, while contracts are contingent on an observable productive activity. Under limited commitment it is impossible to implement outcomes with positive transfers in the second period. To circumvent this problem, the regulator can tighten the regulation of the firm in the first period to induce a larger investment (lock-in effect).
    Keywords: moral hazard, contract theory, limited commitment, firrm mobility, abatement capital
    JEL: D82 D86 L51
    Date: 2014–09–25
  8. By: Aleksandar Vasilev (American University in Bulgaria, Department of Economics)
    Abstract: In this paper we investigate the quantitative importance of search and matching fric- tions in Bulgarian labor markets. This is done by augmenting an otherwise standard real business cycle model a la Long and Plosser (1983) with both a two-sided costly search and fiscal policy. This introduces a strong propagation mechanism that allows the model to capture the business cycles in Bulgaria better than earlier models. The model performs well vis-a-vis data, especially along the labor market dimension, and in addition dominates the market-clearing labor market framework featured in the stan- dard RBC model, e.g Vasilev (2009), as well as the indivisible labor extension used in Hansen (1985).
    Keywords: general equilibrium, unemployment and wages, business cycles, fiscal policy
    JEL: D51 E24 E32 J40
    Date: 2016–02
  9. By: Emanuele Forlani; Ralf Martin; Giordano Mion; Mirabelle Muûls
    Abstract: We develop a new econometric framework that simultaneously allows recovering heterogeneity in demand, TFP and markups across firms while leaving the correlation among the three unrestricted. We do this by systematically exploiting assumptions that are implicit in previous firm-level productivity estimation approaches. We use Belgian firms production data to quantify TFP, demand and markups and show how they are correlated among them, across time and with measures obtained from other approaches. We also show to what extent our three dimensions of heterogeneity allow us to gain deeper and sharper insights on two key firm-level outcomes: export status and size.
    Keywords: demand, productivity, markups, production function estimation, export status, firm size
    JEL: D24 L11 L25 F14
    Date: 2016–01
  10. By: Martin Labaj (Department of Economics, Vienna University of Economics and Business); Karol Morvay (Department of Economic Policy, University of Economics in Bratislava); Peter Silanic (Department of Economic Policy, University of Economics in Bratislava); Christoph Weiss (Department of Economics, Vienna University of Economics and Business); Biliana Yontcheva (Department of Economics, Vienna University of Economics and Business)
    Abstract: The present paper provides first microlevel (indirect) empirical evidence on changes in the determinants of firm profitability, the role of fixed and sunk costs, as well as the nature of competition for a transition economy. We estimate size thresholds required to support different numbers of firms for four retail and professional service industries in a large number of geographic markets in Slovakia. The three time periods in the analysis (1995, 2001 and 2010) characterize different stages of the transition process. Specific emphasis is given to spatial spill-over effects between local markets. Estimation results obtained from a spatial ordered probit model suggest that entry barriers have declined considerably (except for restaurants) and the intensity of competition has increased. We further find that demand spill-overs and/or the effects associated with a positive correlation in unobservable explanatory variables seem to outweigh negative spill-over effects caused by competitive forces between neighboring cities and villages. The importance of these spatial spill-over effects differs across industries.
    Keywords: entry thresholds, competition, Slovakia, transition, geographic markets
    JEL: L22 D22 M13 R11
    Date: 2016–02
  11. By: Bahar Baziki, Selva (Central Bank of the Republic of Turkey); Ginja, Rita (Department of Economics); Borota Milicevic, Teodora (Department of Economics)
    Abstract: This paper studies the changes in labor allocation across firms and industries in response to changes in technology (captured by the adoption of information and communication technologies, ICT) and import competition, due to increased exposure to trade competition from China. We use detailed matched worker-firm data from the Swedish manufacturing sector. We provide new evidence on the mobility of heterogeneous workers across firms and document increased assortative matching of workers in ICT intensive industries. However, the sorting patterns are not uniform across industries within this group. The adoption of ICT along with stronger Chinese import competition results in a significant skill upgrade within high-wage firms. Incontrast, in the absence of strong pressures in import competition, sorting occurs at the low end of the worker-firm distribution, i.e. low-skill workers allocate to low-wage firms. Industries with low ICT intensity do not exhibit any of these sorting patterns. We rationalize our empirical findings through a labor market matching model which is able to explain the increased assortative matching in ICT intensive industries through an increase in the relative demand for qualifiedd workers.
    Keywords: Wage Inequality; Employment Dynamic; Assortative Matching; Import Competition; Technological Change
    JEL: E24 F16 J31 J63 O33
    Date: 2015–12–26
  12. By: Gramlich, Jacob P. (Board of Governors of the Federal Reserve System (U.S.)); Ray, Korok (Texas A&M School of Business)
    Abstract: Despite the clear prescription from economic theory that a firm should set price based only on variable costs, firms routinely factor fixed costs into pricing decisions. We show that full-cost pricing (FCP) can help firms uncover their optimal price from economic theory. FCP marks up variable cost with the contribution margin per unit, which in equilibrium includes the fixed cost. This requires some knowledge of the firm's equilibrium return, though this is arguably easier a lower informational burden than knowing one's demand curve, which is required for optimal economic pricing. We characterize when FCP can implement the optimal price in a static game, a dynamic game, with multiple products, and under a satisficing objective.
    Keywords: Full Cost Pricing; Marginal Cost Pricing; Optimal Pricing; Pricing
    Date: 2015–09–09
  13. By: Shreya Biswas (Indira Gandhi Institute of Development Research)
    Abstract: This study finds that the inter-firm network in India on account of director interlocks is a small world and the network has become more integrated since the introduction of corporate governance regulations in the country. Using a sample of National Stock Exchange listed firms in India the study finds a negative relation between average path length and probability of acquiring indicating the importance of faster reach of information among the firms within the network. The paper also finds a non-linear relation given by inverted U-shaped curve between firm level clustering and probability of acquiring. Initially, increase in clustering has a positive effect through the informational quality effect; however at higher levels the negative informational redundancy effect dominates leading to a curvilinear relation.
    Keywords: Corporate governance, Small-world, Director interlocks, Inter-firm network
    JEL: G32 G34 G38 M21 Z13
    Date: 2016–01

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