nep-bec New Economics Papers
on Business Economics
Issue of 2016‒05‒28
eighteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Entry Games and Free Entry Equilibria By Michele Polo
  2. Firms’ Dynamics and Business Cycle: New Disaggregated Data By Lorenza Rossi; Emilio Zanetti Chini
  3. The Survival of Unique Corporate Cultures By Gil S. Epstein; Renana Lindner Pomerantz
  4. Driving business performance: innovation complementarities and persistence patterns By Maurizio Baussola; Eleonora Bartoloni
  5. Relative Wealth Concerns, Executive Compensation, and Systemic Risk-Taking By Liu, Qi; Sun, Bo
  6. Swimming Upstream Throughout the Turmoil: Evidence on Firm Growth During the Great Recession By A. Arrighetti; F. Landini; A. Lasagni
  7. Why don't all firms do 'good' equally? By Shantanu Banerjee; Swarnodeep Homroy; Aurelie Cecile Dominique Slechten
  8. Firms’ Strategic Choice of Loan Delinquencies By Morales-Acevedo, Paola
  9. Competition and the Welfare Gains from Transportation Infrastructure: Evidence from the Golden Quadrilateral of India By José Asturias; Manuel García-Santana; Roberto Ramos
  10. A Cross Matrix for Modeling Open Innovation in Production Management By Gratiela Boca
  11. Worker-level consequences of import shocks By Katariina Nilsson Hakkala; Huttunen; Kristiina
  12. Skill use, skill deficits, and firm performance in formal sector enterprises : evidence from the Tanzania enterprise skills survey, 2015 By Tan,Hong W.; Bashir,Sajitha; Tanaka,Nobuyuki
  13. The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom By De Marco, Filippo; Wieladek, Tomasz
  14. The role of regulation on entry : evidence from the Italian provinces By Bripi,Francesco
  15. Outward FDI and Domestic Input Distortions: Evidence from Chinese Firms By Cheng Chen; Wei Tian; Miaojie Yu
  16. Coordinating R&D efforts for quality improvement along a supply chain By L. Lambertini
  17. Self-Selection and Learning-by-Exporting Hypotheses: Micro Level Evidence By Rehman, Naqeeb Ur
  18. Collecting new pieces to the regional knowledge spillovers puzzle: high-tech versus low-tech industries By Carlos Carreira; Luís Lopes

  1. By: Michele Polo
    Abstract: This Chapter reviews the theoretical liteature on entry games and free entry equilibria. We show that a wide range of symmetric oligopoly models share common comparative statics properties. Individual profits and quantities decrease in the number of firms, and tend to competitive or monopolistic competitive equilibria when the number of firms increases indefinitely. The maximum number of firms sustainable in a symmetric long run equilibrium depends on technology (economies of scale), preferences (market size) and strategies (toughness of price competition). On the normative side, in homogeneous product markets the business stealing effect drives the result of excessive entry, whereas adding product differentiation and the utillity from variety may revert the result. We then consider asymmetric free entry equilibria that exploit the aggregative nature of many oligopoly models. Finally, we discuss endogenous sunk costs and persistent concentration and frictionless entry and contestable markets.
    Keywords: Entry, Free entry equilibria, endogenous and exogsnous sunk costs, contestable markets
    JEL: L1 L13 D43
    Date: 2015
  2. By: Lorenza Rossi (Department of Economics and Management, University of Pavia); Emilio Zanetti Chini (Department of Economics and Management, University of Pavia)
    Abstract: We provide stylized facts on firms dynamics by disaggregating U.S. yearly data from 1977 to 2013. To this aim, we use a new unobserved component-based method, encompassing several classical regression-based techniques currently in use. The new time series of Entry and Exit of firms at establishment level are feasible proxies of Business Cycle. Exit is a leading and countercyclical indicator, while Entry is lagging and procyclical. The resulting SVAR analysis supports the recent theoretical findings of the literature on firms dynamics.
    Keywords: C10, C13, E3, E32, E37.
    Date: 2016–05
  3. By: Gil S. Epstein (Bar-Ilan University); Renana Lindner Pomerantz
    Abstract: In this paper we identify two situations that can lead a firm to hire an executive who supports a corporate culture that differs from the firm’s current culture. In the first case, there is similarity between the firm’s culture and that of the candidate and in the second case, executives who support the firm’s culture constitute a minority of available candidates. In both cases the firm prefers to hire an available candidate, rather than risk a prolonged vacancy. We show how these scenarios can lead to the eradication of unique cultures and to the perpetuation of more common cultures.
    Keywords: Corporate culture, Organizations, Minority.
    Date: 2016–04
  4. By: Maurizio Baussola (DISCE, Università Cattolica); Eleonora Bartoloni (ISTAT, Regional Office for Lombardy)
    Abstract: Complementarities between technological and non-technological innovation are crucial determinants of firm performance. This topic has not received the attention that it merits, as the focus has been primarily placed on technological innovation alone or on innovation efforts as measured by R&D or patent activities. The capacities to develop market-oriented behaviour and introduce new organisational innovations are the drivers - together with technological innovation - of a firm's productivity and profitability. We also underline how the impact of such activities is larger when they persist over time, thus introducing a more general concept of innovation persistency. We present an empirical model based on a large and new panel of Italian manufacturing firms covering the period 2000-2012 that enables us to derive the precise impacts of a firm's innovative effort - based on a broad definition that incorporates non-technological innovation and persistence - on its productivity and profitability.
    Keywords: Technological and non-technological innovation, Complementarities, European Community Innovation Survey, Profitability, Productivity, Unbalanced panel data
    JEL: L25
    Date: 2016–03
  5. By: Liu, Qi; Sun, Bo
    Abstract: Given the recent empirical evidence on peer effects in CEO compensation, this paper theoretically examines how relative wealth concerns, in which a manager’s satisfaction with his own compensation depends on the compensation of other managers, affect the equilibrium contracting strategy and managerial risk-taking. We find that such externalities can generate pay-for-luck as an efficient compensation vehicle in equilibrium. In expectation of pay-for-luck in other firms, tying managerial pay to luck provides insurance to managers against a compensation shortfall relative to executive peers during market fluctuations. When all firms pay for luck, we show that an effort-inducing mechanism exists: managers have additional incentives to exert effort in utilizing investment opportunities, which helps them keep up with their peers during industry movements. In addition, we show that compensation arrangements involving pay-for-luck that are efficient from the shareholders’ perspective can nonetheless exacerbate aggregate fluctuations in the real economy by incentivizing excessive systemic risk-taking, especially in periods of heightened risk.
    Keywords: Relative wealth concerns ; Managerial compensation ; Pay-for-luck ; Excessive risk-taking
    JEL: D82 D86
    Date: 2016–05
  6. By: A. Arrighetti; F. Landini; A. Lasagni
    Abstract: In contrast to the so-called cleansing effect, during the Great Recession we observe highly heterogeneous firm performances. In particular, a not negligible subset of firms grew considerably despite of the general tendency towards downsizing. In this paper, we explain the behaviour of these swimming upstream firms (SUFs). We obtain three main results. First, SUFs exhibit certain firm-specific characteristics: they are younger and relatively more productive than non-SUFs. Second, SUFs adopt highly proactive strategic profiles, which assign significant importance to activities related to innovation, intangibles, and internationalization. Third, SUFs tend to react to changes in market opportunities, although they suffer from sticky processes of resource reallocation between exiting and surviving firms. Moreover, their growth seems to take place primarily within a regime of cumulative destruction rather than creative destruction. Some of the implications of these results for managers and policy makers are discussed.
    Keywords: crisis, cleansing effect, heterogeneity, growth, firm performance, manufacturing industry
    JEL: D22 L21 L25 O32
    Date: 2016
  7. By: Shantanu Banerjee; Swarnodeep Homroy; Aurelie Cecile Dominique Slechten
    Abstract: This paper shows that di¤erence in equity holding structure leads to heterogeneous firm preference for investing in social capital (CSR). In our theoretical model managerial and customer preferences jointly influence CSR investments. We show that if managerial preference is high, social investments of firms are higher, independent of customer preference. We test our theoretical predications using data from Indian firms. We show that firms with concentrated shareholding invest more in CSR. Firms with dispersed shareholding increase social investments if they export to the United States and the European Union, but they decrease these expenses in reaction to antidumping penalties.
    Keywords: Controlling Stakeholding, Public Goods, Corporate Social Responsibility
    JEL: D13 G28 J12 G32
    Date: 2016
  8. By: Morales-Acevedo, Paola (Monetary Policy Department, Central Bank of Sweden)
    Abstract: I analyze the repayment decisions of firms with multiple loans that, for liquidity constraints or strategic reasons, stop making payments in some but not all their loans. Using a sample of commercial loans from Colombia over the period 2002:03 – 2012:06, I find that firms are less likely to stop making payments on loans granted by banks with which they have long relationships and by banks with which they have a clean repayment history. These results suggest that firms are concerned with losing the benefits gained through the relationship. I also find that firms are more likely to stop making payments on loans from foreign banks when compared to domestic banks, and equally on loans from state owned banks when compared to private banks. This suggests that the ability and willingness of the bank to punish the firm for misbehaving play an important role in a firm’s decision. Overall, the results suggest that firms assess their delinquency choices based on their perceived ability to obtain new loans in the future.
    Keywords: Payment delinquencies; strategic choice; lending relationship; foreign ownership; state banks
    JEL: G21 G32 G33
    Date: 2016–04–01
  9. By: José Asturias; Manuel García-Santana; Roberto Ramos
    Abstract: A significant amount of resources is spent every year on the improvement of transportation infrastructure in developing countries. In this paper, we investigate the effects of one such large project, the Golden Quadrilateral in India, on the income and allocative efficiency of the economy. We do so using a quantitative model of internal trade with variable markups. We find real income gains of 2.71% in the aggregate and that allocative efficiency accounts for 8% of these gains. The importance of allocative efficiency varies greatly across states, and can account for up to 19% of the overall gains. Thus, allocative efficiency can play an important role in determining both the size and distribution of gains from new infrastructure.
    Date: 2016–05
  10. By: Gratiela Boca (Department of Economics and Physics, Technical University of Cluj Napoca)
    Abstract: Innovation has become the industrial religion of the late 20th century. Business sees it as the key to increasing profits and market share. Governments automatically reach for it when trying to fix the economy. Around the world, the rhetoric of innovation has replaced the post-war language of welfare economics. Innovation: nothing new? Recent years have seen much focus on how innovation can lead to improvements in productivity assisting in economic development The article present the big difference between making culture in a particular field and practicing it. Innovation is the instrument of entrepreneurship. It invests resources with a new capacity to produce prosperity.
    Keywords: cost, open innovation, quality, product life cycle. quality, cross culture, management change
    Date: 2014–06
  11. By: Katariina Nilsson Hakkala; Huttunen; Kristiina
    Abstract: We analyse the effects of imports on employment and earnings by distinguishing between import competition in final products and firms? use of imports in production (offshoring). We use Finnish worker-firm data merged with product -level trade data. We focus on Chinese imports and instrument them by changes in China?s share of world exports. Both types of importing increase the job loss risk for all workers and, in particular, for workers in production occupations. An increase in import competition has larger negative effects than an increase in offshoring. Production workers suffer the largest earnings losses, while for high -skilled workers the wage-effect is positive.
    Keywords: Offshoring, Import Competition, Employment, Earnings
    JEL: F16 L24 J63 J31 J23
    Date: 2016–05–16
  12. By: Tan,Hong W.; Bashir,Sajitha; Tanaka,Nobuyuki
    Abstract: Inadequacies in Tanzania's education and training systems compromise the quality of workforce skills, giving rise to skill shortages, and constraining the operations and growth of formal sector firms in the country. This study addressed these concerns using data from a unique Enterprise Skills Survey that asked Tanzanian employers about the education, training, and occupational mix of their workforce, the skill gaps in cognitive, noncognitive, and job-specific competencies affecting their operations, and the strategies they are using to overcome these skill gaps. The study investigates the consequences for firm productivity of employers'choices about their optimal skills mix, and their strategies to mitigate shortfalls in skills supply. Compared with noninnovators and firms primarily serving the domestic market, exporters and innovators face greater skill demand and suffer from skill shortages that are more likely to constrain their operations in such areas as quality assurance, use of new technology, and introducing new products and services. In analyzing firm performance and its relation to skill mix, the study found that firms with higher shares of tertiary-educated workers are more productive; it found no impact, however, from secondary education and technical vocational education and training qualifications, possibly reflecting the universally acknowledged poor quality of secondary education in Tanzania. Employers use a range of strategies to address skill deficiencies, from hiring new workers, to training current workers in-house or externally, using high-skill expatriate workers, or outsourcing professional services. Almost all were associated with higher labor productivity. The exception, employer provided in-house training, had no measurable impact on productivity.
    Keywords: ICT Policy and Strategies,Education For All,Effective Schools and Teachers,Access&Equity in Basic Education,Primary Education
    Date: 2016–05–12
  13. By: De Marco, Filippo; Wieladek, Tomasz
    Abstract: We study the effects of bank-specific capital requirements on Small and Medium Enterprises (SMEs) in the UK from 1998 to 2006. Following a 1% increase in capital requirements, SMEs' asset growth contracts by 6.9% in the first year of a new bank-firm relationship, but the effect declines over time. We also compare the effects of capital requirements to those of monetary policy. Monetary policy only affects firms with higher credit risk and those borrowing from small banks, whereas capital requirements affect both. Capital requirement changes, instead, do not affect firms with alternative sources of finance, but monetary policy shocks do.
    Keywords: Capital requirements; Firm-level real effects; prudential and monetary policy.; relationship lending; SMEs
    JEL: E51 G21 G28
    Date: 2016–05
  14. By: Bripi,Francesco
    Abstract: This paper studies the effects of differences in local administrative burdens in Italy in the years 2005?2007 preceding a major reform that sped up firm registration procedures. Combining regulatory data from a survey on Italian provinces before the reform (costs and time to start a business) with industry-level entry rates of limited liability firms, it explores the effects of regulatory barriers on the average of the annual entry rates across industries with different natural propensities to enter the market. The estimates of the cross-sectional analysis show that lengthier and, to some extent, more costly procedures reduced entry in sectors with naturally high entry. A one-day delay in registration procedures reduces the entry rate in highly dynamic sectors by more than 1 percent. These results hold when I include measures of local financial development and of efficiency of bankruptcy procedures are included.
    Keywords: Banks&Banking Reform,Economic Theory&Research,Access to Finance,Transport Economics Policy&Planning,Information and Communication Technologies
    Date: 2016–04–26
  15. By: Cheng Chen (University of Hong Kong); Wei Tian (University of International Business and Economics, Beijing); Miaojie Yu (Peking University)
    Abstract: This paper examines how domestic distortions a ect firms’ investment strategies abroad. The study first documents puzzling empirical findings concerning Chinese multina- tional corporations, which include that private multinational corporations are less productive than state-owned multinational corporations. A theoretical model is built to rationalize these findings and yields additional empirically consistent predictions. The key insight is that dis- crimination against private firms domestically incentivizes these firms to produce abroad, which results in less tough selection into foreign direct investment for them. A calibra- tion exercise shows the quantitative impacts of domestic distortions on gains in aggregate productivity after investment liberalization.
    Keywords: Outward FDI, Multinational Firms, Institutional Distortion, State-owned Enterprises
    JEL: F13 O11 P51
  16. By: L. Lambertini
    Abstract: The optimal design of two-part tariffs is investigated in a dynamic model where two firms belonging to the same supply chain invest in R&D activities to increase the quality of the final product. It is shown that the replication of the vertically integrated monopolist’s performance can be attained using a TPT in which the fee is a linear function of either the upstream R&D effort or product quality itself. The possibility of relying on R&D figures appearing in the upstream firm’s balance sheet is desirable as quality enhancement might not be observable or verifiable.
    JEL: C73 L12 O31
    Date: 2016–02
  17. By: Rehman, Naqeeb Ur
    Abstract: This aim of this empirical paper is to investigate the self-selection and learning-by-exporting hypotheses. This study addresses the reverse causality between innovation, productivity and exporting using micro level data on 29 countries from Eurasia and Central and Eastern Europe (CEE). CDM estimation results suggest that innovation and productivity positively influence the firm’s exporting and vice versa. This study has supported the self-selection and learning-by-exporting hypotheses. Previous studies provided mixed outcome on the analysis of these two major hypotheses. Similarly, innovation by exporting is examined using multiple proxies of innovation such as product/process innovation, R&D and organizational innovation. Findings imply that innovation is an important determinant of firms’ exporting and this outcome is robust across Eurasian and CEE firms. Moreover, foreign owned firms are more likely to export and innovate than domestic firms due to their technological superiority over domestic firms. Concerning policy implications, economic policies should address the firm’s innovation, productivity and exporting performance. This would result in better economic integration between Eurasian and CEE firms. By removing the firm’s barriers such as access to finance, trade regulations and taxation etc would encourage trade networks between Eurasian and CEE firms.
    Keywords: Innovation, productivity and Exporting.
    JEL: F6 O3
    Date: 2016–05–20
  18. By: Carlos Carreira (GEMF and Faculty of Economics, University of Coimbra, Portugal); Luís Lopes (GEMF and Faculty of Economics, University of Coimbra, Portugal)
    Abstract: This paper revisits the puzzling question regarding the role of spatial agglomeration of production activities and knowledge on firm’s total factor productivity (TFP). In particular, it addresses the overlooked issue of a plausible non-linear effect and different across industries. Using a panel of Portuguese manufacturing firms, we found that specialization economies have a positive impact on firms’ productivity, especially for those operating in medium-high and high-tech sectors. Diversity externalities, for its part, have an inverted U-shaped relationship with firms’ TFP in low, medium-low and medium-high tech sectors. The relationship between regional R&D employment and productivity differs across sectors: in all manufacturing firms and firms from medium-low and high-tech sectors, there is an inverted U-shaped relationship; in low-tech sector, there is a U-shaped relationship and a positive elasticity for any employment level higher than the 20th percentile. Overall, agglomeration economies differ substantially across industries and they are non-linear.
    Keywords: Regional knowledge spillovers, agglomeration economies, low-tech vs. high-tech industries, total factor productivity. JEL Classification:
    Date: 2016–05

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