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on Business Economics |
| By: | Vasco M. Carvalho; Basile Grassi; ; |
| Abstract: | Do large firm dynamics drive the business cycle? We answer this question by developing a quantitative theory of aggregate fluctuations caused by firm-level disturbances alone. We show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle, without appealing to aggregate shocks. We offer a complete analytical characterization of the law of motion of the aggregate state in this class of models – the firm size distribution – and show that the resulting closed form solutions for aggregate output and productivity dynamics display: (i) persistence, (ii) volatility and (iii) time-varying second moments. We explore the key role of moments of the firm size distribution – and, in particular, the role of large firm dynamics – in shaping aggregate fluctuations, theoretically, quantitatively and in the data. |
| Keywords: | Large Firm Dynamics; Firm Size Distribution; Random Growth; Aggregate Fluctuations |
| Date: | 2016–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1556&r=bec |
| By: | Jean-Pierre H. Dubé; Zheng Fang; Nathan Fong; Xueming Luo |
| Abstract: | We conduct a large-scale field experiment to study competitive price discrimination in a duopoly market with two rival movie theaters. The firms use mobile targeting to offer different prices based on location and past consumer activity. A novel feature of our experiment is that we test a range of relative ticket prices from both firms to trace out their respective best-response functions and to assess equilibrium outcomes. We use our experimentally-generated data to estimate a demand model that can be used to predict the consumer choices and corresponding firm best-responses at price levels not included in the test. We find an empirically large return on investment when a single firm unilaterally targets its prices based on the geographic location or historical visit behavior of a mobile customer. However, these returns can be mitigated by competitive interactions whereby both firms simultaneously engage in targeting. In practice, firms typically test only their own prices and do not consider the competitive response of a rival. In our study of movie theaters, competition enhances the returns to behavioral targeting but reduces the returns to geo-targeting. Under geographic targeting, each theater offers a discount in the other rival's local market, toughening price competition. In contrast, under behavioral targeting, the strategic complementarity of prices coupled with the symmetric incentives of the two theaters to raise prices charged to high-recency customers softens price competition. Thus, managers need to consider how competition moderates the profitability of price targeting. Moreover, field experiments that hold the competitor's actions fixed may generate misleading conclusions if the permanent implementation of a tested action would likely elicit a competitive response. |
| JEL: | L1 L11 L13 M31 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22067&r=bec |
| By: | Müller, Steffen (IWH Halle); Neubäumer, Renate (University of Koblenz-Landau) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9806&r=bec |
| 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. |
| JEL: | J01 L2 M2 O32 O33 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22101&r=bec |
| By: | Ji, Jiao; Talavera, Oleksandr; Yin, Shuxing |
| Abstract: | Our paper examines the relationship between the frequency of board meetings on particular topics, and CEO dismissal/compensation and performance sensitivities. We utilize a unique dataset of specific topics discussed at board meetings, drawn from the reports of independent directors of listed firms in China over the period of 2003 to 2010. Our results show that turnover-performance sensitivity is weaker when there is a higher frequency of board meetings discussing the nomination of directors and top management. Moreover, the link between CEO compensation and firm performance is enhanced only when directors meet more often to discuss growth strategies for the use of IPO proceeds, investment and acquisitions. The paper provides support for agency theories on the effectiveness of board monitoring. It sheds lights on what makes boards more effective, and how board monitoring of different decisions at board meetings modifies the connection between CEO interests and firm performance. |
| Keywords: | Board Effectiveness, Board Meeting Topics, Agency Costs, CEO Compensation, CEO Dismissal |
| JEL: | G30 G34 |
| Date: | 2016–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:70232&r=bec |
| By: | Landini, Fabio (LUISS School of European Political Economy); Arrighetti, Alessandro (University of Parma, Department of Economics); Lasagni, Andrea (University of Parma, Department of Economics) |
| Abstract: | The crisis in the Euro area has caused several business closures, especially in the EMU periphery. In this paper we use an original firm-level dataset on Italy to study the determinants of firm exit during the crisis, having a particular focus on the role of intangibles. We argue that intangibles strengthen the firm’s resilience capacity, and this in turn improves the firms’ ability to cope with adverse and unexpected shocks. We obtain two main results: first we show that intangibles significantly reduce the probability of firm exit, especially during the initial phase of the crisis; second, we find that financial constraints become more relevant than intangibles in explaining firm exit at later stages of the crisis. Thus, the process of firm selection during the crisis has undergone a rapid transformation, with distortions that may lead even skilled firms to exit. Some of the implications of these findings for the EU recovery policies are discussed. |
| Keywords: | intangibles; firm exit; EU crisis; industry dynamics |
| JEL: | D22 L21 L25 O32 |
| Date: | 2015–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sepewp:2015_010&r=bec |
| By: | Jean J. Gabszewicz (CORE, Université Catholique de Louvain); Marco A. Marini (Università La Sapienza, Roma); Ornella Tarola (Università La Sapienza, Roma) |
| 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 |
| JEL: | D42 D43 L1 L12 L13 L41 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2016.15&r=bec |
| By: | Giannetti, Caterina (LUISS School of European Political Economy) |
| Abstract: | This paper investigates the level of debt specialization across European firms relying on a cross-country comparable sample of manufacturing firms. We find that a number of firm characteristics – such as firm size and age – help predict the firm composition of the various types of debts (i.e. debt specialization) but not the level of each debt share. In particular, we observe that small and young firms have a more concentrated debt structure (i.e. they rely on few types of debt). However, these relationships are not linear and seem to be U-shaped. We also find that Spanish firms have the most diversified debt structure, and that diversified firms are less likely to experience a severe reduction in turnover. |
| Keywords: | Debt specialization; European firms; Firm financing |
| JEL: | F20 G32 |
| Date: | 2015–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sepewp:2015_003&r=bec |
| By: | Sabrina Ferretti (Bank of Italy); Andrea Filippone (Bank of Italy); Giacinto Micucci (Bank of Italy) |
| Abstract: | This paper analyzes the Italian companies that filed for bankruptcy or underwent voluntary liquidation between 2008 and 2012 and identifies the main characteristics of this phenomenon. The econometric analysis based on firms’ balance sheet data suggests that the probability of going out of business was greater for smaller and younger companies. Other characteristics being equal, such as size, sector and geographical location, the likelihood of a firm initiating bankruptcy proceedings was more strongly correlated with imbalances in its financial structure such as a high leverage ratio, while a firm’s likelihood of opting for voluntary liquidation was influenced to a greater extent by low profitability. |
| Keywords: | bankruptcies, liquidations, financial structure |
| JEL: | G33 L25 K20 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_317_16&r=bec |
| By: | Manuel Buchholz; Lena Tonzer; J. Berner |
| Abstract: | This paper analyzes how firm-specific uncertainty affects firms’ propensity to invest. We measure firm-specific uncertainty as firms’ absolute forecast errors derived from survey data of German manufacturing firms over 2007–2011. In line with the literature, our empirical findings reveal a negative impact of firm-specific uncertainty on investment. However, further results show that the investment response is asymmetric, depending on the size and direction of the forecast error. The investment propensity declines significantly if the realized situation is worse than expected. However, firms do not adjust their investment if the realized situation is better than expected, which suggests that the uncertainty effect counteracts the positive effect due to unexpectedly favorable business conditions. This can be one explanation behind the phenomenon of slow recovery in the aftermath of financial crises. Additional results show that the forecast error is highly concurrent with an ex-ante measure of firm-specific uncertainty we obtain from the survey data. Furthermore, the effect of firm-specific uncertainty is enforced for firms that face a tighter financing situation. |
| Keywords: | risk climate, microeconomic survey data, forecast errors, firm investment, uncertainty |
| JEL: | D22 D84 E32 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:7-16&r=bec |
| By: | Yihui Pan; Tracy Yue Wang; Michael S. Weisbach |
| Abstract: | Management risk occurs when uncertainty about future managerial decisions increases a firm’s overall risk. This paper argues that management risk is an important yet unexplored determinant of a firm’s default risk and the pricing of its debt. CDS spreads, loan spreads and bond yield spreads all increase at the time of CEO turnover, when management risk is highest, and decline over the first three years of CEO tenure, regardless of the reason for the turnover. A similar pattern but of smaller magnitude occurs around CFO turnovers. The increase in the CDS spread at the time of the CEO departure announcement, the change in the spread when the incoming CEO takes office, as well as the sensitivity of the spread to the new CEO’s tenure, all depend on the amount of prior uncertainty about the new management. |
| JEL: | G32 G34 M12 M51 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22091&r=bec |
| By: | Paulo Bastos (World Bank); Natália P. Monteiro (Department of Economics/NIPE, University of Minho); Odd Rune Straume (Department of Economics/NIPE, School of Economics and Management, University of Minho) |
| Abstract: | We study the effect of foreign takeovers on firm organization. Using a comprehensive data set of Portuguese firms and workers spanning two decades, we find that foreign acquisitions lead to: (1) an expansion in the scale of operations; (2) a higher number of hierarchical layers; (3) increased span of control among top managers; and (4) increased wage inequality across layers. These results accord with a theory of knowledge-based hierarchies in which foreign takeovers improve management practices and reduce communication costs within the acquired firms. Evidence from auxiliary survey data provides support to this mechanism by suggesting that acquired firms are more likely to use information technologies that reduce internal communication costs. |
| Keywords: | Foreign direct investment, internal organization, wage inequality, information technologies. |
| JEL: | D24 E23 F23 M10 M16 O30 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:5/2016&r=bec |
| By: | Uwe Jirjahn |
| Abstract: | Examinations on the determinants of profit sharing usually focus on objective firm characteristics. Using data from manufacturing firms in Germany, this study shows that managers’ subjective attitudes towards profit sharing also play an important role in the adoption and termination of this payment scheme. Positive management attitudes are associated with an increased likelihood of adopting profit sharing. While to some extent this entails failed experimentation, positive managerial attitudes also substantially contribute to a sustained use of profit sharing. The pattern of results holds even when controlling for a variety of objective firm characteristics. |
| Keywords: | Profit sharing, management attitude, management discretion, subjective factors, experimentation |
| JEL: | J33 M52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:201601&r=bec |
| By: | Eckbo, B Espen; Nygaard, Knut; Thorburn, Karin S |
| Abstract: | A board gender quota reduces firm value if it forces the appointment of under-qualified female directors. We examine this costly constraint hypothesis using the natural experiment created by Norway's 2005 board gender-quota law. This law drove the average fraction of female directors from 5% in 2001 to 40% by 2008, producing a large exogenous shock to director experience and independence. However, statistically robust analyses of quota-induced shareholder announcement returns, and of long-run stock and accounting performance, fail to reject the hypothesis of a zero valuation effect of this shock to board composition. Moreover, firms did not expand board size, nor is there significant evidence of quota-induced corporate conversions to a (non-public) legal form exempted from the quota law. Finally, our evidence on female director turnover and a novel network-based measure of director gender-power gap also fails to suggest that qualified female directors were in short supply. |
| Keywords: | busy directors; corporate conversion; director independence; director network power; Gender quota; long-run performance; valuation effect |
| JEL: | G34 G35 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11177&r=bec |
| By: | Miguel Casares (Department of Economics, Universidad Pública de Navarra); Hashmat U. Khan (Department of Economics, Carleton University) |
| Abstract: | We document empirical evidence on the determinants of U.S. regional growth over the last 25 years, with a special attention to the role of entrepreneurial activity or `business dynamism'. The main data source is the Business Dynamics Statistics (BDS) released by the U.S. Census Bureau. The key findings are: i) business entry and exit rates are similarly distributed across states, ii) neither entry nor exit rates have had a significant impact on regional growth, iii) higher business density results in faster regional growth, iv) entry rates have fallen over time and the states with greater business detrending have had weaker economic growth, v) states where entry and exit show substantial comovement (business churning) tend to grow faster, especially after 2007, vi) state-level population growth has no substantial effect on regional growth, and vii) the convergence hypothesis holds across the states of the U.S. |
| Keywords: | Business dynamism; Entry-exit rates; Economic growth |
| JEL: | O30 O40 O51 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:16-03&r=bec |
| By: | Yamada, Mai |
| Abstract: | We examine an optimal trading partner for an upstream monopolist, an input supplier, in a situation in which the intensity of market competition depends on trading partner choice. The upstream monopolist supplies the input to either the incumbent or the entrant. We assume only incumbent has the outside option which it can make the input by itself and then produces the final product. On the other hand, the entrant does not have the outside option. If the upstream firm chooses the incumbent as its trading partner, it can have a bilateral monopoly relationship with the incumbent. If the upstream firm chooses the entrant as its trading partner, it faces downstream competition. We show trading with the entrant can yield greater profits for the upstream monopolist than trading with the incumbent. Thus, the upstream monopolist has incentives to encourage downstream competition through its trading partner choice. Our paper suggests that the existence of the incumbent's outside option encourages new entry into the downstream market. |
| Keywords: | Upstream monopolist; Trading partner choice; Bargaining game; Profits; Outside Option |
| JEL: | C78 L13 |
| Date: | 2016–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:70325&r=bec |
| By: | Masaru Inaba (Faculty of Economics, Kansai University); Keisuke Otsu (School of Economics, University of Kent) |
| Abstract: | We study the features of regional business cycles and growth in Japan. We nd evidence of unconditional convergence over the 1955- 2008 period. For the 1975-2008 period, we nd evidence of convergence conditional on TFP gap, population growth, private investment rate and TFP growth. We also nd that the consumption-output correlation puzzle exists, which implies that the idiosyncratic income shocks are not shared among prefectures and regions. Financial market distortions are important in accounting for the low correlation of consumption across regions. |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2016cf1005&r=bec |