nep-bec New Economics Papers
on Business Economics
Issue of 2016‒03‒29
sixteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Board Diversity and Firm Performance Volatility By Giannetti, Mariassunta; Zhao, Mengxin
  2. Human resource management practices and organizational performance. The mediator role of immaterial satisfaction in Italian Social Cooperatives By Silvia Sacchetti; Ermanno C. Tortia; Francisco J. López Arceiz
  3. Size of Training Firms and Cumulated Long-run Unemployment Exposure – The Role of Firms, Luck, and Ability in Young Workers’ By Steffen Müller; R. Neubäumer
  4. Business Practices in Small Firms in Developing Countries By McKenzie, David; Woodruff, Christopher
  5. Classification Shifting: Impact of Firm Life Cycle By Nagar, Neerav; Sen, Kaustav
  6. Emerging multinational corporations: Theoretical and conceptual framework By Mustafa Sakr and Andre Jordaan
  7. The Micro Origins of International Business Cycle Comovement By Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean
  8. Seniority wages and the role of firms in retirement By Frimmel W.; Horvath T.; Schnalzenberger M.; Winter-Ebmer R.
  9. Trade Policy Uncertainty and Exports: Evidence from China’s WTO Accession By Ling Feng; Zhiyuan Li; Deborah L. Swenson
  10. The effect of board directors from countries with different genetic diversity levels on corporate performance By Delis, Manthos D.; Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios
  11. Global Value Chain Upgrading By Ylömäki, Tobias
  12. Mind the gap: The difference between U.S. and European loan rates By Berg, Tobias; Saunders, Anthony; Steffen, Sascha; Streitz, Daniel
  13. Vertical Differentiation and Collusion: Cannibalization or Proliferation? By Gabszewicz, Jean J.; Marini, Marco A.; Tarola, Ornella
  14. The role of commercial insurance in post-disaster recovery: Quantitative evidence from the 2011 Christchurch earthquake By Poontirakul, Porntida; Brown, Charlotte; Noy, Ilan; Seville, Erica; Vargo, John
  15. Identifying firms' tax loss carry-forward status: The accuracy of database-ariven methods By Rechbauer, Martina
  16. The structure of global inter-firm networks By Mizuno, Takayuki; Ohnishi, Takaaki; Watanabe, Tsutomu

  1. By: Giannetti, Mariassunta; Zhao, Mengxin
    Abstract: Diverse directors may have diverse preferences over firms’ policies and objectives. As shown by Arrow (1951), diverse individual preferences may fail to univocally aggregate in collective preferences and may consequently lead to arbitrary and volatile decisions. Using the board of directors as a laboratory, we test whether diversity leads to higher performance volatility. We show that firms with more diverse boards have greater stock return and fundamental volatility suggesting that board diversity indeed makes decision-making more erratic. Also, firms with diverse boards have less persistent strategies and analysts make larger forecast errors in predicting their performance supporting the conjecture that board members’ diverse preferences lead to hard to predict decisions. Consistent with the presence of conflicts in the boardroom, we find that executive and director turnovers are higher in firms with diverse boards. These firms also have more board meetings. We find no evidence that our results may be driven by firm risk-taking or complexity.
    Date: 2016–03
  2. By: Silvia Sacchetti (University of Stirling); Ermanno C. Tortia (University of Trento); Francisco J. López Arceiz (Faculty of Economics and Business Studies, Universidad de Zaragoza)
    Abstract: The paper deals with the mediating role of immaterial satisfaction between substantive human resources (HR) features and organizational performance. We address this relationship in the Italian social service sector using a survey dataset that includes 4134 workers and 320 not-for-profit social cooperatives. The obtained results show that human resource management (HRM) practices influence immaterial satisfaction and, satisfaction positively impacts on firm performance. However, the impact of the different HRM practices is not the same. In this sense, worker involvement and workload pressure have a positive impact on firm performance; but task autonomy or collaborative teamwork do not have impact on organizational performance.
    Keywords: Immaterial satisfaction; workload pressure; autonomy; involvement; teamwork; firm performance.
    JEL: J28 J81 L15 L25 L84 M54
    Date: 2016–02
  3. By: Steffen Müller; R. Neubäumer
    Abstract: This paper analyzes how life-cycle unemployment of former apprentices depends on the size of the training firm. We start from the hypotheses that the size of training firms reduces long-run cumulated unemployment exposure, e.g. via differences in training quality and in the availability of internal labor markets, and that the access to large training firms depends positively on young workers’ ability and their luck to live in a region with many large and medium-sized training firms. We test these hypotheses empirically by using a large administrative data set for Germany and find corroborative evidence.
    Keywords: unemployment, training, apprenticeship, young workers, mobility, firm size
    JEL: D21 L10 L25 L26 L29 M13
    Date: 2016–03
  4. By: McKenzie, David (World Bank); Woodruff, Christopher (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, record-keeping, 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 Classification: O12; L26; M20; O17; M53.
    Date: 2016
  5. By: Nagar, Neerav; Sen, Kaustav
    Abstract: Purpose - This paper examines whether firms in the decline stage of life cycle manipulate core or operating income through misclassification of operating expenses as income-decreasing special items. Design/methodology/approach - Our sample comprises of firms from an emerging market, India with data from 1996-2011. We use the methodology given in McVay (2006) and multiple regressions. Findings - Managers of Indian firms also engage in classification shifting, primary incentive being desire to avoid reporting of operating losses. Further, the use of classification shifting is dependent upon the stage of life cycle in which firm is in. Specifically, firms in the decline stage of life cycle are more likely to use classification shifting to avoid reporting of operating losses. Practical implications - The paper sheds light on a critical phase of the firm life cycle – decline, which increases the possibility of use of classification shifting – an earnings management technique which auditors, investors and regulators find tough to detect. Originality/value - We extend the literature on classification shifting, and present first evidence that such shifting is more likely to take place during the decline phase of firm life cycle.
  6. By: Mustafa Sakr and Andre Jordaan
    Abstract: Given the looming significance of emerging multinational corporations, this article outlines the primary theoretical aspects pertaining to this growing phenomenon. The following four main aspects are covered: The concept of emerging multinational corporations, theories explaining their evolution, market penetration modes, and finally the types of such firms. Based on the motive of multinationality, it is proposed to classify the different theories into three groups, namely: Firm advantages (asset exploiting), host country advantages (asset seeking), and both firm and host country advantages. This article distinguishes between 10 different types of emerging multinational corporations, based on the timing and the motives for initiating the multinationality process, the relation between the headquarters and affiliates, and the geographical dispersion of foreign activities. Entry modes adopted by emerging multinational corporations vary significantly according to ownership, the nature of overseas' operations, the control of parent firms over these activities, and the extent of externalising and internalising.
    Keywords: emerging multinational corporations, foreign market entry modes, theories of emerging multinational corporations, and types of emerging multinational corporations
    JEL: P45 F21
    Date: 2016
  7. By: Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean
    Abstract: This paper investigates the role of individual firms in international business cycle comovement using data covering the universe of French firm-level value added, bilateral imports and exports, and cross-border ownership over the period 1993-2007. At the micro level, controlling for firm and country effects, trade in goods with a particular foreign country is associated with a significantly higher correlation between a firm and that foreign country. In addition, foreign multinational affiliates operating in France are significantly more correlated with the source economy. The impact of direct trade and multinational linkages on comovement at the micro level has significant macro implications. Because internationally connected firms are systematically larger than non- internationally connected firms, the firms directly linked to foreign countries represent only 8% of all firms, but 56% of all value added, and account for 75% of the observed aggregate comovement. Without those linkages the correlation between France and foreign countries would fall by about 0.091, or one-third of the observed average business cycle correlation of 0.29 in our sample of partner countries. These results are evidence of transmission of business cycle shocks through direct trade and multinational ownership linkages at the firm level.
    JEL: F44
    Date: 2016–01
  8. By: Frimmel W.; Horvath T.; Schnalzenberger M.; Winter-Ebmer R. (ROA)
    Abstract: In general, retirement is seen as a pure labor supply phenomenon, but firms can have strong incentives to send expensive older workers into retirement. Based on the seniority wage model developed by Lazear 1979, we discuss steep seniority wage profiles as incentives for firms to dismiss older workers before retirement. Conditional on individual retirement incentives, e.g., social security wealth or health status, the steepness of the wage profile will have different incentives for workers as compared to firms when it comes to the retirement date. Using an instrumental variable approach to account for selection of workers in our firms and for reverse causality, we find that firms with higher labor costs for older workers are associated with lower job exit age.
    Keywords: Social Security and Public Pensions; Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination; Retirement; Retirement Policies; Wage Level and Structure; Wage Differentials;
    JEL: J14 J26 J31 H55
    Date: 2015
  9. By: Ling Feng; Zhiyuan Li; Deborah L. Swenson
    Abstract: This paper studies how reduction in trade policy uncertainty affects firm export decisions. Using a firm-product level dataset on Chinese exports to the United States and the European Union in the years surrounding China’s WTO accession, we provide strong evidence that reduction in trade policy uncertainty simultaneously induced firm entries to and firm exits from export activity within fine product-level markets. In addition, we uncover accompanying changes in export product prices and quality that coincided with this reallocation: firms that provided higher quality products at lower prices entered the export market, while firms that had higher prices and provided lower quality products prior to the changes, exited. To explain the simultaneous export entries and exits, as well as the change in product export prices and quality induced by trade policy uncertainty changes, we provide a model of heterogeneous firms which incorporates trade policy uncertainty, tracing the effects of the changes in policy uncertainty on firm-level payoffs and the resulting selection effects which apply to new entrants and incumbents.
    JEL: F13 F14 F23
    Date: 2016–02
  10. By: Delis, Manthos D.; Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios
    Abstract: We link genetic diversity in the country of origin of the firms’ board members with corporate performance via board members’ nationality. We hypothesize that our approach captures deep-rooted differences in cultural, institutional, social, psychological, physiological, and other traits that cannot be captured by other recently measured indices of diversity. Using a panel of firms listed in the North American and U.K. stock markets, we find that adding board directors from countries with different levels of genetic diversity (either higher or lower) increases firm performance. This effect prevails when we control for a number of cultural, institutional, firm-level, and board member characteristics, as well as for the nationality of the board of directors. To identify the relationship, we use as instrumental variables for our diversity indices the migratory distance from East Africa and the level of ultraviolet exposure in the directors’ country of nationality.
    Keywords: genetic diversity, corporate performance, nationality of board members
    Date: 2015–08–17
  11. By: Ylömäki, Tobias
    Abstract: Global value chain (GVC) upgrading is a key factor in country-level economic performance. Therefore it is important to study its fundamental, firm-level origins. What are the main attributes that drive firms toward GVC upgrading? How do upgrading trajectories differ? The previous literature has largely concentrated on developing countries and firms producing low value-added goods and services. Are there any fundamental differences between these and firms in a highly developed country that mainly operate in sectors other than pure manufacturing? I answer these questions by analyzing a 2015 survey that consists of thousands of Finnish firms from a variety of industries and size cohorts. From the survey, it is possible to determine firms’ ex ante propensity for GVC upgrading. I found that innovativeness, the young age of the firm and outsourcing positively affect upgrading. I also found that firms do not plan their upgrading via any specific trajectory.
    Keywords: Global value chain upgrading, firm-level survey analysis, innovativeness, outsourcing
    Date: 2016–03–11
  12. By: Berg, Tobias; Saunders, Anthony; Steffen, Sascha; Streitz, Daniel
    Abstract: We analyze differences in the pricing of syndicated loans between U.S. and European loans. For credit lines, U.S. borrowers pay significantly higher spreads, but also lower fees, resulting in similar total costs of borrowing in both markets. For term loans, U.S. firms pay significantly higher spreads. While European firms across the rating spectrum issue terms loans, only low quality U.S. firms rely on term loans. U.S. issuers perform worse after loan origination compared to European issuers, which explains 30% of the spread differential. Increasing loan supply by institutional lenders in the U.S. since 2003 eventually fully removed the term loan pricing gap.
    Keywords: loans,corporate debt,fees,market integration,globalization
    JEL: G30 G20 G15
    Date: 2016
  13. By: Gabszewicz, Jean J.; Marini, Marco A.; Tarola, Ornella
    Abstract: In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multiproduct firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market. The same findings do not hold when firms are horizontally differentiated along a circle.
    Keywords: Vertically Differentiated Markets, Cannibalization, Market Pruning, Price Collusion, Public Economics, D42, D43, L1, L12, L13, L41,
    Date: 2016–03–01
  14. By: Poontirakul, Porntida; Brown, Charlotte; Noy, Ilan; Seville, Erica; Vargo, John
    Abstract: We examine the role of business interruption insurance in business recovery following the Christchurch earthquake in 2011 in the short- and medium-term. In the short-term analysis, we ask whether insurance increases the likelihood of business survival in the aftermath of a disaster. We find only weak evidence that those firms that had incurred damage, but were covered by business interruption insurance, had higher likelihood of survival post-quake compared with those firms that did not have insurance. This absence of evidence may reflect the high degree of uncertainty in the months following the 2011 earthquake and the multiplicity of severe aftershocks. For the medium-term, our results show a more explicit role for insurance in the aftermath of a disaster. Firms with business interruption insurance have a higher probability of increasing productivity and improved performance following a catastrophe. Furthermore, our results show that those organisations that receive prompt and full payments of their claims have a better recovery, in terms of profitability and a subjective ‘”better off” measure’ than those that had protracted or inadequate claim payments (less than 80% of the claim paid within 2.5 years). Interestingly, the latter group does worse than those organisations that had damage but no insurance coverage. This analysis strongly indicates the importance not only of good insurance coverage, but of an insurance system that also delivers prompt claim payments. As a first paper attempting to empirically identify a causal effect of insurance on business recovery, we also emphasize some caveats to our analysis.
    Keywords: Earthquakes, Disaster impact, Christchurch (New Zealand), Economic impact, Commercial insurance, Business interruption insurance,
    Date: 2016
  15. By: Rechbauer, Martina
    Abstract: Due to data restrictions, empirical tax research commonly relies on database-driven methods as a means of identifying firms' tax loss carry-forward (TLCF) status. Employing a panel of listed Italian parent companies, I am the first to empirically examine the accuracy of database-driven methods in predicting the availability and the amount of TLCF at single-firm level. In order to assess the accuracy of database-driven identification methods, I compare firms' true TLCF status, as determined based on IFRS statement information, to the TLCF status predictions of the methods examined. I find that database-driven methods do not perform well in predicting the availability of TLCF. They perform poorly in predicting the amount of TLCF available to firms. Empirical studies that rely on database-driven identification methods might thus not be able to derive reliable results regarding the impact of TLCF. My findings thus indicate that there is a strong need for firm-specific TLCF information provided by local authorities in empirical tax research.
    Keywords: identification,tax loss carry-forwards,database-driven methods
    JEL: C81 H25 K34
    Date: 2016
  16. By: Mizuno, Takayuki; Ohnishi, Takaaki; Watanabe, Tsutomu
    Abstract: We investigate the structure of global inter-firm relationships using a unique dataset containing information on customers, suppliers, licensors, licensees and strategic alliances for each of 412,814 major incorporated non-financial firms in the world. We focus on three different networks: customer-supplier network, licensee-licensor network, and strategic alliance network. In/out-degree distribution of these networks follows a Pareto distribution with an exponent of 1.5. The shortest path length on the networks for any pair of firms is around six links. The networks have a scale-free property.
    Keywords: Inter-firm relationship, Scale-free network
    Date: 2016–02

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