nep-bec New Economics Papers
on Business Economics
Issue of 2016‒03‒23
nineteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Time allocation and performance: the case of Chinese entrepreneurs By Talavera, Oleksandr; Xiong, Lin; Weir, Charlie
  2. Credit frictions and the cleansing effect of recessions. By S. Osotimehin; F. Pappadà
  3. Finance and creative destruction: evidence for Italy By Francesca Lotti; Francesco Manaresi
  4. Management Practices, Workforce Selection and Productivity By Stefan Bender; Nicholas Bloom; David Card; John Van Reenen; Stefanie Wolter
  5. Social capital and debt contracting: evidence from bank loans and public bonds By Hasan, Iftekhar; Hoi, Chun-Keung (Stan); Wu, Qiang; Zhang, Hao
  6. Competition in treasury auctions By Elsinger, Helmut; Schmidt-Dengler, Philipp; Zulehner, Christine
  7. Exploring the link between Innovation and Growth in Chilean firms By Caterina Santi; Pietro Santoleri
  8. The old boy network: The impact of professional networks on remuneration in top executive jobs By Lalanne, Marie; Seabright, Paul
  9. Innovation strategies and firm growth By Stefano Bianchini; Federico Tamagni; Gabriele Pellegrino
  10. Bank internationalization and firm exports: evidence from matched firm-bank data By Raffaello Bronzini; Alessio D'Ignazio
  11. Markup responses to Chinese imports By Meinen, Philipp
  12. The Interaction and Sequencing of Policy Reforms By Jose Asturias; Sewon Hur; Timothy J. Kehoe; Kim J. Ruhl
  13. Does Privatization Increase Firm Performance in Nigeria?: An Empirical Investigation By Usman, Ojonugwa; Olorunmolu, Joseph O.
  14. R&D Competitions and Firms'International Expansions By Maria Luisa Petit; Francesca Sanna-Randaccio
  15. From less promising to green? Technological opportunities and their role in (green) ICT innovation By Cecere, Grazia; Rexhäuser, Sascha; Schulte, Patrick
  16. International Trade with Indirect Additivity By Paolo Bertoletti; Federico Etro; Ina Simonovska
  17. Growing like Spain: 1995-2007 By García-Santana, Manuel; Moral-Benito, Enrique; Pijoan-Mas, Josep; Ramos, Roberto
  18. Does say on pay matter? Evidence from the German natural experiment By Troeger, Tobias H.; Walz, Uwe
  19. Accounting for Business Cycles in Canada: I. The Role of Supply-Side Factors By Accolley, Delali

  1. By: Talavera, Oleksandr; Xiong, Lin; Weir, Charlie
    Abstract: This paper analyses the effect of time allocation on the financial performance of entrepreneurial firms. We apply the Lewbel (2012) estimator to a pooled dataset of Chinese private manufacturing firms that are managed by their owners. Time is allocated between management, networking and study activities. After accounting for endogeneity, we find an inverted U-shaped relationship between management hours and firm performance and between networking and firm performance. However, no relationship between time spent studying and firm performance is observed. We also find that the managing hours-performance relationship is particularly strong for companies managed by entrepreneurs who own more than 75% of share, for companies that are managed by owners with previous experience, for male entrepreneurs and for smaller sized firms.
    Keywords: Time allocation, owner manager businesses, China
    JEL: L26 M21 O53
    Date: 2016–02–29
  2. By: S. Osotimehin; F. Pappadà
    Abstract: Recessions are conventionally considered as times when the least productive firms are driven out of the market. How do credit frictions affect this cleansing effect of recessions? We build and calibrate a model of firm dynamics with credit frictions and endogenous entry and exit to investigate this question. We find that there is a cleansing effect of recessions in the presence of credit frictions, despite their effect on the selection of exiting and entering firms. This result holds true regardless of the nature of the recession: average firm-level productivity rises following a negative aggregate productivity shock, as well as following a negative financial shock. The intensity of the cleansing effect of recessions is however lower in the presence of credit frictions, especially when the recession is driven by a financial shock.
    Keywords: cleansing, business cycles, firm dynamics, credit frictions.
    JEL: E32 E44 D21
    Date: 2016
  3. By: Francesca Lotti (Banca d'Italia); Francesco Manaresi (Banca d'Italia)
    Abstract: In this paper we provide new evidence on the relationship between market concentration in the banking industry and firm dynamics. In Italy, in the case of a banking merger or acquisition, the antitrust authorities can require the sale of bank branches if the joint market share of the banks involved in the merger exceeds a specific threshold. We exploit this feature to carry out RDD estimates of (i) the effect of intervention by antitrust authorities on banking market concentration, and (ii) the effect of the level of bank concentration on various measures of firm dynamics. The results show that, in those areas where the authorities forced branch sales, firm's entry rates increase, reallocation of employees from incumbent to entrant firms is higher, and the survival rate of newly formed businesses increases. The overall allocative efficiency, as measured by an Olley-Pakes decomposition of labor productivity, is found to improve.
    Keywords: bank competition, firm dynamics, entry, exit, firm size, regression discontinuity
    JEL: G21 L11 M13
    Date: 2015–12
  4. By: Stefan Bender; Nicholas Bloom; David Card; John Van Reenen; Stefanie Wolter
    Abstract: Recent research suggests that much of the cross-firm variation in measured productivity is due to differences in use of advanced management practices. Many of these practices - including monitoring, goal setting, and the use of incentives - are mediated through employee decision-making and effort. To the extent that these practices are complementary with workers' skills, better-managed firms will tend to recruit higher-ability workers and adopt pay practices to retain these employees. We use a unique data set that combines detailed survey data on the management practices of German manufacturing firms with longitudinal earnings records for their employees to study the relationship between productivity, management, worker ability, and pay. As documented by Bloom and Van Reenen (2007) there is a strong partial correlation between management practice scores and firm-level productivity in Germany. In our preferred TFP estimates only a small fraction of this correlation is explained by the higher human capital of the average employee at better-managed firms. A larger share (about 13%) is attributable to the human capital of the highest-paid workers, a group we interpret as representing the managers of the firm. And a similar amount is mediated through the pay premiums offered by better-managed firms. Looking at employee inflows and outflows, we confirm that better-managed firms systematically recruit and retain workers with higher average human capital. Overall, we conclude that workforce selection and positive pay premiums explain just under 30% of the measured impact of management practices on productivity in German manufacturing.
    Keywords: management practices, productivity, wages
    JEL: L2 M2 O32 O33
    Date: 2016–03
  5. By: Hasan, Iftekhar; Hoi, Chun-Keung (Stan); Wu, Qiang; Zhang, Hao
    Abstract: We find that firms headquartered in U.S. counties with higher levels of social capital incur lower bank loan spreads. This finding is robust to using organ donation as an alternative social-capital measure and incremental to the effects of religiosity, corporate social responsibility, and tax avoidance. We identify the causal relation using companies with a social-capital-changing headquarter relocation. We also find that high-social-capital firms face loosened nonprice loan terms, incur lower at-issue bond spreads, and prefer bonds over loans. We conclude that debt holders perceive social capital as providing environmental pressure constraining opportunistic firm behaviors in debt contracting.
    Keywords: social capital, cooperative norm, moral hazard, cost of bank loans, public bonds
    JEL: G21 G32 Z13
    Date: 2015–11–20
  6. By: Elsinger, Helmut; Schmidt-Dengler, Philipp; Zulehner, Christine
    Abstract: We investigate the role of competition on the outcome of Austrian Treasury auctions. Austria's EU accession led to an increase in the number of banks participating in treasury auctions. We use structural estimates of bidders' private values to examine the effect of increased competition on auction performance: We find that increased competition reduced bidder surplus substantially, but less than reduced form estimates would suggest. A significant component of the surplus reduction is due to more aggressive bidding. Counterfactuals establish that as competition increases, concerns regarding auction format play a smaller role.
    Keywords: treasury auctions,multi-unit auctions,independent private values,competition,bidder surplus,auction format
    JEL: D44 G12 G21 L10 L13
    Date: 2016
  7. By: Caterina Santi; Pietro Santoleri
    Abstract: We employ a balanced panel dataset representative of the entire Chilean productive structure in order to investigate the relation between the introduction of innovation and subsequent firm growth in terms of sales. Recent contributions examining the returns to innovation on firm performance have stressed the need of going beyond the analysis of the `average effect for the average firm'. However, previous studies in the case of Latin American economies have often overlooked the importance of analyzing which firms benefit more from the introduction of innovations. Our analysis consists of a series of parametric and non-parametric exercises which take into account the properties of the firm growth distribution. In particular, we adopt quantile treatment effects (QTE) which allow to estimate the effect of the introduction of innovation by comparing firms with a similar propensity to innovate for different quantiles of the firm growth distribution. On one hand, our results indicate that process innovation shows a positive and significant relation with firm growth for those firms located at the 75th and 90th percentiles. On the other, product innovation shows a negative association only for high-growth firms.
    Keywords: innovation, firm growth, Chile, quantile regression, quantile treatment effects
    Date: 2016–01–03
  8. By: Lalanne, Marie; Seabright, Paul
    Abstract: We investigate the impact of social networks on earnings using a dataset of over 20,000 senior executives of European and US firms. The size of an individual's network of influential former colleagues has a large positive association with current remuneration. An individual at the 75th percentile in the distribution of connections could expect to have a salary nearly 20 per cent higher than an otherwise identical individual at the median. We use a placebo technique to show that our estimates reflect the causal impact of connections and not merely unobserved individual characteristics. Networks are more weakly associated with women's remuneration than with men's. This mainly reflects an interaction between unobserved individual characteristics and firm recruitment policies. The kinds of firm that best identify and advance talented women are less likely to give them access to influential networks than are firms that do the same for the most talented men.
    Keywords: professional networks,gender wage gap,executive compensation,placebo technique
    JEL: A14 J16 J31 J33
    Date: 2016
  9. By: Stefano Bianchini (BETA, University of Strasbourg); Federico Tamagni (Scuola Superiore San'Anna); Gabriele Pellegrino (WIPO & EPFL & IEB)
    Abstract: In this work, we explore the relations between sales growth and a set of innovation indicators that capture the different sources, modes and results of the innovative activity undertaken within firms. We exploit a rich panel on innovation activity of Spanish manufacturing firms, reporting detailed CIS-type information continuously over the period 2004-2011. Standard GMM-panel estimates of the average effect of innovation activities reveal significant and positive effect for internal R&D, while no effect is found for external sourcing of knowledge (external R&D, acquisition of embodied and disembodied technologies) as well as for output of innovation (process and product innovation). However, fixed-effects quantile regressions reveal that innovation activities, apart from process innovation and disembodied technical change, display a positive effect on high-growth performance. Finally, we find evidence of super-modularity of the growth function, revealing complementarities of internal R&D with product innovation, and between product and process innovation.
    Keywords: Firm growth, product and process innovation, internal and external R&D, embodied and disembodied technical change, fixed-effects quantile regressions, complementarity
    JEL: C21 D22 O31 O32
    Date: 2016
  10. By: Raffaello Bronzini (Bank of Italy); Alessio D'Ignazio (Bank of Italy)
    Abstract: In this paper we investigate whether new exporter firms have a higher probability of starting to export to the countries where their financing banks have already established their branches. The underlying mechanism we hypothesize is based on the transmission of foreign market knowledge from banks to firms, so as to cut down information barriers to international trade. In those countries where such information is arguably more precious to the firm, we found a significant positive relationship between a firm’s probability of beginning to export to one market, and the presence in the same market of a branch of the firm’s financing bank. Coherently with the mechanism hypothesized, we find a stronger effect for closer firm-bank relationships, and when banks have established their branches abroad over a longer time period.
    Keywords: internationalization, export, bank-firm relationships
    JEL: F10 G21
    Date: 2016–02
  11. By: Meinen, Philipp
    Abstract: This paper analyzes markup responses of Danish firms to Chinese imports. Besides negative markup responses due to competitive pressure, we present some evidence for marginal cost savings related to Chinese intermediate goods imports which tend to raise firm-level markups.
    Keywords: Chinese Imports,Markups
    JEL: D22 F14 L25
    Date: 2016
  12. By: Jose Asturias; Sewon Hur; Timothy J. Kehoe; Kim J. Ruhl
    Abstract: In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. The model includes barriers to entry of new firms, barriers to international trade, and barriers to contract enforcement. We find that the same reform can have very different effects on other economic outcomes, depending on the types of distortions present. In our model, we find that reforms to trade barriers and barriers to the entry of new firms are substitutable, as are reforms to contract enforcement and trade barriers. In contrast, we find that reforms to contract enforcement and the barriers to entry are complementary. Finally, the optimal sequence of reforms requires reforming trade barriers before contract enforcement.
    JEL: F13 F4 O11 O19 O24
    Date: 2016–01
  13. By: Usman, Ojonugwa; Olorunmolu, Joseph O.
    Abstract: This paper examined the validity of the efficacy of privatization by investigating not only whether privatization has improved financial (profitability) performance of firms but also whether such improvement has impact on the operational efficiency of privatized firms for the period 1990-2001 in Nigeria. Using a panel data for a sample of 20 privatized firms obtained from the Nigerian Stock Exchange and Securities and Exchange Commission, the result showed an increase in all the profitability ratios after privatization. However, only the return on assets and return on sales were significant in explaining the difference between pre- and post-privatization performance of firms in Nigeria. The result of the operational efficiency showed a significant increase in the mean (median) values of sale efficiency and income efficiency. Interestingly, while output (real sales) and employee income of firms significantly increased after privatization, the number of employees decreased insignificantly after privatization. The paper concluded that privatization in Nigeria has worked in the sense that it improves the financial and operational efficiency performance of firms.
    Keywords: Privatization, Firm performance, Operational Efficiency, Profitability, Nigerian Stock Exchange
    JEL: L32
    Date: 2015–10–03
  14. By: Maria Luisa Petit (La Sapienza University of Rome); Francesca Sanna-Randaccio (Sapienza University of Rome)
    Abstract: This paper examines the impact of the firms'mode of foreign expansion on the incentive to innovate as well as the effects of R&D activities and technological spillovers on the firms' international strategy. We consider a two country imperfect competition model where the firms' face three different type of decisions: how to expand abroad, how much to spend in R&D and how much to sell in each market Market structure is therefore endogenously determined as the equilibrium solution of a three stage game. It is shown that the firm that invests more in research is the one which is a MNE while the rival is an exporter, whereas the firm that invests less is the one that exports while the rival is a MNE. The results indicate that there is a positive relationship between multinational expansion and R&D investment and that, in turn, investment in research leads oligopolistic firms'towards multinational expansion. The value of the spillover parameter too can be an important determinant of firms'international strategy.
    Keywords: Multinational firm. export, direct investment, R&D, innovation, intellectual property rights.
    JEL: F12 F23 L10
  15. By: Cecere, Grazia; Rexhäuser, Sascha; Schulte, Patrick
    Abstract: This paper aims to shed light on the role of technological opportunities for green innovation by studying the case of Green ICT innovation. We test two hypotheses: (1) Firms active in low-opportunity technological areas are less innovative; (2) Firms active in low-opportunity technological areas are more likely to change their direction of technical change. To do so, we construct a firm-level panel data set for the years 1992-2009 combining patent data from the European Patent Office with firm-level data from the German Innovation Panel (Mannheim Innovation Panel). The results are based on dynamic count data estimation models applying General Methods of Moments estimators. Our results support our hypotheses: firms active in low-opportunity technological areas are less innovative but are more likely to switch from pure ICT innovation to Green ICT innovation.
    Keywords: technological opportunities,innovation,information and communication technology (ICT),green ICT,firm-level patent data,dynamic count data model
    Date: 2015
  16. By: Paolo Bertoletti; Federico Etro; Ina Simonovska
    Abstract: We develop a general equilibrium model of monopolistic competition and trade based on indirectly additive preferences and heterogenous firms. It generates markups independent from destination population but increasing in destination per capita income, as documented empirically. Trade liberalization delivers an increase in consumed variety and incomplete cost pass-through. This leads to welfare gains that can be much lower than those predicted by comparable models with different preferences. We introduce a tractable utility function that further predicts that small firms grow more during trade liberalization and pass through cost changes more than do large firms. Once we estimate the model to match moments from cross-firm and cross-country data we (i) find quantitatively large differences in the welfare gains from trade relative to models based on homothetic preferences, and (ii) evaluate the gains and losses from the Transatlantic Trade and Investment Partnership agreement.
    JEL: D11 D43 F12 L11
    Date: 2016–02
  17. By: García-Santana, Manuel; Moral-Benito, Enrique; Pijoan-Mas, Josep; Ramos, Roberto
    Abstract: Spanish GDP grew at an average rate of 3.5% per year during the expansion of 1995-2007, well above the EU average of 2.2%. However, this growth was based on factor accumulation rather than productivity gains as TFP fell at an annual rate of 0.7%. Using firm-level administrative data for all sectors we show that deterioration in the allocative efficiency of productive factors across firms was at the root of the low TFP growth in Spain, while misallocation across sectors played only a minor role. Cross-industry variation reveals that the increase in misallocation was more severe in sectors where government influence is more important for business success, which represents novel evidence on the potential macroeconomic costs of crony capitalism. In contrast, sectoral differences in financial dependence, skill intensity, innovative content, tradability, or capital structures intensity appear to be unrelated to changes in allocative efficiency. All in all, the observed high output growth together with increasing firm-level misallocation in all sectors is consistent with an expansion driven by a demand boom rather than by structural reforms.
    Keywords: Misallocation; Spain; TFP
    JEL: D24 O11 O47
    Date: 2016–03
  18. By: Troeger, Tobias H.; Walz, Uwe
    Abstract: This paper investigates the potential implications of say on pay on management remuneration in Germany. We try to shed light on some key aspects by presenting quantitative data that allows us to gauge the pertinent effects of the German natural experiment that originates with the 2009 amendments to the Stock Corporation Act of 1965. In order to do this, we deploy a hand-collected data set for Germany's major firms (i.e. DAX 30), for the years 2006-2012. Rather than focusing exclusively on CEO remuneration we collected data for all members of the management board for the whole period under investigation. We observe that the compensation packages of management board members of Germany's DAX30-firms are quite closely linked to key performance measures. In addition, we find that salaries increase with the size of the company and that ownership concentration has no significant effect on compensation. Also, our findings suggest that the two-tier system seems to matter a lot when it comes to compensation. However, it would be misleading to state that we see no significant impact of the introduction of the German say on pay-regime. Our findings suggest that supervisory boards anticipate shareholder-behavior.
    Keywords: say-on-pay,corporate governance,management compensation
    JEL: K20 K22 L22
    Date: 2016
  19. By: Accolley, Delali
    Abstract: After documenting business cycle facts in Canada, I have used a bunch of popular models to explain them. The common features of these models are: the use of the neoclassical growth framework, the assumption that prices are flexible enough to ensure a general equilibrium, and the reliance on supply-side factors, mainly technological change, to explain business cycles. I have also assessed the ability of these models to replicate these business cycle facts.
    Keywords: Macroeconomics, Business Cycle
    JEL: E32
    Date: 2016–03–03

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