nep-bec New Economics Papers
on Business Economics
Issue of 2016‒06‒25
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Job Creation and the Role of Dependencies By Fornaro, Paolo; Luomaranta, Henri
  2. Industrial Cluster Policy and Transaction Networks: Evidence from firm-level data in Japan By OKUBO Toshihiro; OKAZAKI Tetsuji; TOMIURA Eiichi
  3. Small, young, and exporters: New evidence on the determinants of firm growth By M. Grazzi; D. Moschella
  4. Trade, firm selection, and innovation: the competition channel By Giammario Impullitti; Omar Licandro
  5. Making (small) firms happy: The heterogeneous effect of trade facilitation measures By Fontagné, Lionel; Orefice, Gianluca; Piermartini, Roberta
  6. What Explains the Diversity of Regulatory Reform Outcomes? By Stankov, Petar; Vasilev, Aleksandar
  7. The credit channel is alive at the zero lower bound but how does it operate? Firm level evidence on the asymmetric effects of U.S. monetary policy. By Uluc Aysun
  8. The Protection Economy: Occasional Service Failure as a Business Model By Halbheer , Daniel; Gerstner , Eitan; Koenigsberg , Oded
  9. Opinion shopping: Partner versus firm-level evidence By Beatriz García Osma; Belén Gill de Albornoz Noguer; Elena De las Heras Cristobal
  10. The Effect of Trial Periods in Employment on Firm Hiring Behaviour By Nathan Chappell; Isabelle Sin
  11. The Finnish corporate network—empirical findings from the board room network By Pihlava Matti
  12. Bidding for network size By Foucart, Renaud; Friedrichsen, Jana
  13. The cost-quantity relations and the diverse patterns of ülearning by doingý: Evidence from India By Giovanni Dosi; Marco Grazzi; Nanditha Mathew
  14. Alleviating Managerial Dilemmas in Human-Capital-Intensive Firms Through Incentives: Evidence from M&A Legal Advisors By Chatain, Olivier; Meyer-Doyle, Philipp

  1. By: Fornaro, Paolo; Luomaranta, Henri
    Abstract: We contribute to the large literature on the relation between firm size and job creation by examining the effects of dependences between enterprises. Using Finnish monthly data encompassing the population of Finnish private businesses, we calculate gross job creation and destruction, together with net job creation, for different size classes and industries. Importantly, we divide firms into a dependent (i.e. owned, at least partially, by a large company) and independent category. The analysis is based on both a dataset including entry and exit and a sample considering only continuous companies, to control for the effects of firm's age. Due to the quality of the data, we are able to isolate the 'organic' growth of firms, disregarding the effects of mergers and split-offs together with other legal restructurings. We find that independent companies have shown considerably higher net job creation, even after taking age into account. However, dependent firms do not show particularly different behavior with respect to the sensitivity to aggregate conditions, compared to their independent counterparts.
    Keywords: Dependencies, Job Creation, Firm-level Data, Large datasets, Employment statistics
    JEL: E24 E32 J63 L25 L26
    Date: 2016–05–01
  2. By: OKUBO Toshihiro; OKAZAKI Tetsuji; TOMIURA Eiichi
    Abstract: Cluster policy is designed to facilitate inter-firm networking. We examine industrial clusters in Japan based on firm-level transaction data. Firms in clusters expand transaction networks at higher speeds, but do so significantly only with firms agglomerated in Tokyo and not with local firms within the same region. By disaggregating firms according to their main bank types, we find that cluster firms expanding networks are mainly financed by regional banks and not by banks with nationwide operations. This suggests the importance of intensive relationships with main banks for inter-firm network formation.
    Date: 2016–05
  3. By: M. Grazzi; D. Moschella
    Abstract: This work investigates how the export status of the firm influences the patterns of growth at different age classes. We address this research question resorting to a novel set of data that links together the universe of Italian firms and detailed data on export transactions. We find that the positive relationship between export status and growth declines with firm age. Further, we also find that, even when accounting for the role of age, the negative size-growth relationship does not disappear, contrary to some recent evidence. These results, which are robust to a series of controls, suggest for a positive signaling role of the export status which is stronger for young exporters or born globals. Exploiting the product-country level dimension of the customs data we also provide, for the first time, evidence on differences in exchange rates pass through between young and experienced exporters. In particular, we find that early exporters appear to be well equipped to face exchange rates variations as their exports decrease less following a currency appreciation.
    JEL: D22 F14 L11 L21 L25
    Date: 2016–06
  4. By: Giammario Impullitti; Omar Licandro
    Abstract: We study the welfare gains originating from pro-competitive effects of trade liberalization in an economy with heterogeneous firms, variable markups and endogenous growth. Variable markups arise from oligopoly trade in similar goods, and cost-reducing innovation is the engine of sustained productivity growth. Trade liberalization stiffens product market competition by reducing markups, generating tougher firm selection and increasing the aggregate productivity level. Market share reallocations triggered by selection increase firms’ incentives to innovate, thereby leading to a higher aggregate productivity growth rate. Endogenous productivity growth boosts the selection gains from trade, leading to substantial welfare improvements. A calibrated version of the model shows that growth doubles the gains from trade obtainable in models with static firm-level productivity.
    Keywords: Endogenous Growth, Heterogeneous Firms, Oligopoly, Variable Markups, Dynamic Gains from Trade.
    Date: 2016
  5. By: Fontagné, Lionel; Orefice, Gianluca; Piermartini, Roberta
    Abstract: This paper considers the asymmetric effect of Trade Facilitation Agreement (TFA) policies on heterogeneous exporters, based on matching a detailed panel of French firm exports to a new database of Trade Facilita- tion Indicators (TFIs) released recently by the Organisation for Economic Cooperation and Development (OECD). We analyze the effect of these TFIs on three trade-related outcomes: (i) exported value (firm intensive margin), (ii) number of products exported (product extensive margin) and (iii) average export value per product exported (product intensive margin). We find strong evidence of a heterogeneous effect of trade facilitation across firm size. While better information availability, advance ruling and appeal procedures mainly benefit small firms, the simplification of documents and automation tend to favor large firms' trade. This is coherent with the idea that while some elements of the TFA simply reduce the fixed cost of exporting (favoring small firms in particular), other chapters in the TFA reduce the scope for corruption at borders, making large firms less reluctant to serve corrupt countries.
    Keywords: Trade Facilitation,Heterogeneous Firms,Extensive Margin,Intensive Margin
    JEL: F13 F14
    Date: 2016
  6. By: Stankov, Petar; Vasilev, Aleksandar
    Abstract: We set up a tractable general equilibrium (GE) model to study how output of firms of different size grows after entry and labor reforms. We then take the model predictions to the largest global publicly available firm-level data set: the Enterprise Surveys data. The results demonstrate that firms of different size grow differently after identical reforms. Thus, based on the notable differences of firm-size distributions across countries, identical reforms may produce a variety of growth outcomes.
    Keywords: regulatory reform,general equilibrium
    JEL: C13
    Date: 2015
  7. By: Uluc Aysun (University of Central Florida, Orlando, FL)
    Abstract: We calculate borrowing spreads for over 8,000 U.S. firms and investigate how these are related to the stance of monetary policy. After 2009, we observe, consistent with credit channel theory, a positive relationship between shadow federal funds rates and borrowing spreads for only firms with high borrowing spreads and low quality. Conversely, we find a negative relationship for firms (of high and low quality) with low borrowing spreads. These relationships are reversed for the period before 2008. Our results uncover the distortional effects of monetary policy. Loose monetary policy causes spreads to converge (diverge) across firms after 2009 (before 2008).
    Keywords: credit channel; zero lower bound; firm-level data; shadow rates
    JEL: E44 E51 E52 G10
    Date: 2016–06
  8. By: Halbheer , Daniel; Gerstner , Eitan; Koenigsberg , Oded
    Abstract: Conventional wisdom holds that service failure creates customer misery and reduces firm profitability. This paper challenges this view and shows that occasional service failure can be profitable for the firm when optional protection against the resulting customer misery can be marketed. It also shows that a firm that uses such a protection strategy inflicts a calculated misery on unprotected customers and wastes resources to provide the protection. Despite these inefficiencies, using the protection strategy can lead to market expansion and social welfare gains due to lower prices.
    Keywords: Service Failure; Customer Damage; Random Versioning
    Date: 2015–12–17
  9. By: Beatriz García Osma (Universidad Carlos III de Madrid); Belén Gill de Albornoz Noguer (Universitat Jaume I); Elena De las Heras Cristobal (Universidad Autónoma de Madrid)
    Abstract: We study the strategies, timing and relative outcomes obtained by companies that attempt to shop for more favorable audit opinions both at the firm and at the partner level. Using a uniquely long time series of Spanish firms’ data, we employ the Lennox's (2000) methodology and find evidence of successful opinion-shopping through voluntary firm switching. In contrast, our results suggest that voluntary audit partner switches are associated with a fresh eye effect. Additionally, we document that firm switching activity is more likely when prior attempts to shop for an opinion were unsuccessful. Finally, we show that the fresh eyes effect associated with partner switching disappears when partner rotation becomes mandatory; and that under such a regulatory setting firm-level opinion-shopping is still pervasive. Estudiamos las estrategias empresariales para conseguir informes de auditoria con opiniones mas favorables, tanto a nivel de firma como de socio. Utilizando la metodología de Lennox (2000) y la comparación entre la opinión pre y post cambio de auditor, proporcionamos evidencia de la existencia de compra de opinión a través del cambio voluntario de firma de auditoría. Sin embargo, los resultados sugieren que los cambios voluntarios del socio de auditoría están asociados con un efecto "ojos frescos". Además, los cambios de firma son más probables cuando previamente se han producido intentos de compra de opinión que no han tenido éxito. Finalmente, se proporciona evidencia de que el efecto "ojos frescos" asociado a los cambios voluntarios de socio desaparece cuando la rotación del socio es obligatoria; y que la compra de opinión a nivel de firma sigue existiendo en un contexto de rotación obligatoria del socio.
    Keywords: compra de opinión; cambio de auditor; opinión con salvedades; rotación obligatoria del socio. opinion-shopping, auditor switches, modified audit reports, mandatory partner rotation.
    JEL: M42 M48
    Date: 2016–05
  10. By: Nathan Chappell (Motu Economic and Public Policy Research); Isabelle Sin (Motu Economic and Public Policy Research)
    Abstract: An amendment to legislation in 2009 enabled New Zealand firms with fewer than 20 employees to hire new workers on trial periods. The scheme was subsequently extended to employers of all sizes. The policy was intended to encourage firms to take on more employees, and particularly more disadvantaged job seekers, by reducing the risk associated with hiring an unknown worker. We use unit record linked employer-employee data and the staggered introduction of the policy for firms of different sizes to assess the policy effect on firm hiring behaviour. We find no evidence that the policy affected the number of hires by firms on average, either overall or into employment that lasted beyond the trial period. We also do not find an effect on hiring of disadvantaged jobseekers. However, our results suggest that the policy increased hiring in industries with high use of trial periods by 10.3 percent.
    Keywords: 90-day trials, employment, labour market flexibility, firm hiring
    JEL: J08 J63 J64
    Date: 2016–06
  11. By: Pihlava Matti (Department of Economics, University of Turku)
    Abstract: This paper studies Finnish firms and especially it’s boardroom network and the effects that it has on financial actions. Compared with earlier studies, this study also takes into consideration both firms that are not connected and uses them as a natural comparison, as well as principal component membership as a relevant network centrality measure. Based on the firms’ year end reports from 2009 to 2013, the results show that firms that are connected are on average greater in size, invest more but their Return On Investments are lower. Higher network centrality further increases the effects. With firm-specific controls and yearly fixed effects the results seem robust. The magnitude of the results can be ambiguous due to simultaneous endogeneity between the variables. Compared to previous studies, the results are contrary to what has been noted earlier. Seasonal changes or general economic outcomes might explain these results.
    Keywords: Network Analysis; Networks; Corporate Governance
    JEL: D85 L14 G34
    Date: 2016–05
  12. By: Foucart, Renaud; Friedrichsen, Jana
    Abstract: We study a game were two firms compete on investment in order to attract consumers. Below a certain threshold, investment aims at attracting ex-ante indifferent users. Above this threshold firms also compete for users loyal to the other firm. We find that, in equilibrium, firms do not choose their investment deterministically but randomize over two disconnected intervals. These correspond to competing for either the entire population or only the ex-ante indifferent users. While the benefits of attracting users are identical for both firms, the value of remaining passive and not investing at all depends on a firm's loyal base. The firm with the smallest base bids more aggressively to compensate for its lower outside option and achieves a monopoly position with higher probability than its competitor.
    Keywords: firms, quality competition, all-pay auction, status-quo bias
    JEL: D43 D44 M13
    Date: 2016–06–21
  13. By: Giovanni Dosi; Marco Grazzi; Nanditha Mathew
    Abstract: "Learning-by-doing" is usually identified as a process whereby performance increases with experience in production. The paper investigates different patterns of "learning by doing", studying learning curves at product level. Cost-quantity relationships differ a lot across products belonging to sectors with different "technological intensities". Moreover, such differential patterns are affected by firm spending on research and capital investments. Finally, our evidence suggests that "learning", or performance improvement over time is not a by-product of the mere repetition of the same production activities, as sometimes reported in previous studies, but rather it seems to be shaped by deliberate firm learning efforts and by the interactions among firms themselves.
    Keywords: Learning-by-doing, learning curves, power law, product innovation, process innovation
    Date: 2016–06–16
  14. By: Chatain, Olivier; Meyer-Doyle, Philipp
    Abstract: Research summary We examine how human-capital-intensive firms deploy their human assets and how firm-specific human capital interacts with incentives to influence this deployment. Our empirical context is the UK M&A legal market, where micro-data enable us to observe the allocation of lawyers to M&A mandates under different incentive regimes. We find that law firms actively equalize the workload among their lawyers to seek efficiency gains while ‘stretching’ lawyers with high firmspecific capital to a greater extent. However, lawyers with high firm-specific capital also appear to influence the staffing process in their favor, leading to unbalanced allocations and less sharing of projects and clients. Paradoxically, law firms may adopt a seniority-based rent-sharing system that weakens individual incentives to mitigate the impact of incentive conflicts on resource deployment. Managerial summary The study highlights the dilemmas when professional service firms allocate their key individuals to incoming projects and the role that monetary incentives play in aggravating or alleviating these dilemmas. In the context of UK M&A law firms we find that partners have a tendency to be attached to too many projects and not to share enough work, which is exacerbated when individual monetary incentives are stronger. Firms adopting a seniority based incentive system (lockstep system) are able to alleviate this effect. This implies that there is a tradeoff between rewarding personal performance versus balancing workloads and fostering collaboration among professionals.
    Keywords: Human-Capital-Intensive Firms; Human Capital; Managerial Dilemmas; Incentives; Capabilities; Micro-foundations; Mergers and Acquisitions; Law firms
    Date: 2015–09–27

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