nep-bec New Economics Papers
on Business Economics
Issue of 2016‒07‒02
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Firm Shutdown During the Financial and Sovereign Debt Crises: Empirical Evidence from Portugal By Priscila Ferreira; George Saridakis
  2. Export characteristics and output volatility: comparative firm-level evidence for CEE countries By Čede, Urška; Chiriacescu, Bogdan; Harasztosi, Péter; Lalinsky, Tibor; Meriküll, Jaanika
  3. Training, quality of management and firm level bargaining By Damiani, Mirella; Ricci, Andrea
  4. Production Networks, Geography and Firm Performance By Andrew B. Bernard; Andreas Moxnes; Yukiko U. Saito
  5. Competition, Innovation, and the Number of Firms By Pedro Bento
  6. Entrepreneurship and the Business Cycle: Stylized Facts from U.S. Venture Capital Activity By Hashmat U. Khan; Pythagoras Petratos
  7. Financial regimes, financialization patterns and industrial performances: preliminary remarks By Giovanni Dosi; Valerie Revest; Alessandro Sapio
  8. Empirical Evidence on Conditional Pricing Practices By Bogdan Genchev; Julie Holland Mortimer
  9. Management as a Technology? By Bloom, Nicholas; Sadun, Raffaella; Van Reenen, John
  10. Heterogeneous Firms and International Trade: The role of productivity and financial fragility By Tiziana Assenza; Domenico Delli Gatti; Jakob Grazzini; Giorgio Ricchiuti
  11. The real effects of universal banking on firms’ investment: Micro-evidence from 2004-2009 By F. Vinas
  12. Competition, Price Dispersion and Capacity Constraints: The Case of the U.S. Corn Seed Industry By Ilin, Cornelia; Shi, Guanming
  13. Markups and concentration in South African manufacturing sectors An analysis with administrative data By Johannes Fedderke; Nonso Obikili; Nicola Viegi
  14. Exporting under Financing Constraints: Firm-level Evidence from EU Countries By Murphy, Gavin; Siedschlag, Iulia

  1. By: Priscila Ferreira (Universidade do Minho, NIMA); George Saridakis (SBRC, Kingston Business School, Kingston University)
    Abstract: We examine how the impact of the recent crises on firm performance, in terms of risk of shutdown, differed depending on firm size. We use a panel of linked employer-employee data covering the period 2002-2012 and investigate whether the effect of firm size varies over the business cycle and with the type of shock associated with two phases of economic contraction: the Financial Crisis and the Sovereign Debt Crisis. Our results show that smaller firms are more likely to shutdown than larger firms, with micro firms being nearly three times more likely to shutdown than large firms. However, within each size band, micro firms are found to experience at least similar rates of survival during the two crises, relative to large firms, to those observed in the pre-crisis period; while medium sized firms are found to be more vulnerable during the financial crisis period, but show more resilience during the sovereign debt crisis. Overall, however, the results suggest that during the sovereign debt crisis firms faced higher probability of closing than during the financial crisis.
    Keywords: firm survival, SMEs, financial crisis, sovereign debt crisis, Portugal
    JEL: C33 J21 L25
    Date: 2016–06
  2. By: Čede, Urška; Chiriacescu, Bogdan; Harasztosi, Péter; Lalinsky, Tibor; Meriküll, Jaanika
    Abstract: The literature shows that openness to trade improves long-term growth but also that it may increase exposure to high output volatility. In this vein, our paper investigates whether exporting and export diversification at the firm level have an effect on the output volatility of firms. We use large representative firm-level databases from Estonia, Hungary, Romania, Slovakia and Slovenia over the last boom-bust cycle in 2004-2012. The results confirm that exporting is related to higher volatility at the firm level. There is also evidence that this effect increased during the Great Recession due to the large negative shocks in export markets. In contrast to the literature and empirical findings for large or advanced countries we do not find a statistically significant and consistent mitigating effect from export diversification in the Central and Eastern European countries. In addition, exporting more products or serving more markets does not necessarily result in higher stability of firm sales. JEL Classification: F14, F43, O57
    Keywords: business cycle, CEE, Central and Eastern Europe, export diversification, export share, volatility of sales
    Date: 2016–05
  3. By: Damiani, Mirella; Ricci, Andrea
    Abstract: Abstract The double aim of this paper is to investigate the link between firm training behaviour and the adoption of performance-related pay (PRP) and to verify how the quality of management contributes to explaining the strength of this link. Using Ordinary Least Squares Estimates and Fixed Effect Estimates for a sample of Italian firms, we find that training is a significant determinant of firm level bargaining on PRP. Furthermore, we find that managerial quality plays a significant positive role and suggest that this is because managerial quality favours the evolution of social norms based on wage bonuses that enhance trust, sustain collaborative relationships and motivate co-workers to train each other. Jel Classifications: M53; M52; J50; I20
    Keywords: Keywords: Training; Compensation; Management; Education
    JEL: J3 J33 M52 M53
    Date: 2016–06–21
  4. By: Andrew B. Bernard; Andreas Moxnes; Yukiko U. Saito
    Abstract: This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm's marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms' buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.
    Keywords: production networks, trade, productivity, infrastructure
    JEL: F14 D22 D85 L10 L14 R12
    Date: 2016–06
  5. By: Pedro Bento (Texas A&M University, Department of Economics)
    Abstract: I look at manufacturing firms across countries and over time, and find that barriers to competition actually increase the number of firms. This finding contradicts a central feature of all current models of endogenous markups and free entry, that higher barriers should reduce competition and firm entry, thereby increasing markups. To rationalize this finding, I extend a standard model in two ways. First, I allow for multi-product firms. Second, I model barriers as increasing the cost of entering a product market, rather than the cost of forming a firm. Higher barriers to competition reduce the number of products per firm and per market, but increase markups and the total number of firms. Calibrating the model to U.S. data, I estimate cross-country differences in consumption as large as 3-fold due to observed differences in barriers to competition. In addition, increasing barriers generates either a negative or inverted-U relationship between firm-level innovation and markups. While higher markups encourage product-level innovation through the usual Schumpeterian mechanism, firm-level innovation (at least eventually) drops as firms reduce their number of products. I provide new evidence supporting these two novel implications of the model - that product-level innovation increases with barriers to competition, while the number of products per firm decreases.
    Keywords: product market regulation, entry costs, firm size, productivity, innovation, markups, competition, multi-product firms
    JEL: L1 L5 O1 O3 O4
    Date: 2016–06–08
  6. By: Hashmat U. Khan (Department of Economics, Carleton University); Pythagoras Petratos (Saïd Business School, Oxford University)
    Abstract: We consider US Venture Capital (VC) activity as a measure of entrepreneurship and study its relationship with the business cycle. This measure addresses some biases in alternative measures such as self-employment and business ownership that have been considered in previous literature. Despite the well-known volatility in VC activity, it remains an important source of funding for entrepreneurs engaging in innovative business creation. We document key stylized facts for VC entry (seed and start-up stage) and VC exit (late stage) at the aggregate and sectoral level. VC entry is more strongly correlated and is contemporaneous with the business cycle while VC exit lags the cycle by two quarters. There is strong evidence for a bi-directional causality between entrepreneurship and economic activity. A positive shock to VC activity has a positive effect on real GDP. Our findings can help inform policies designed to support entrepreneurship.
    Keywords: Entrepreneurship, Venture Capital, Business Cycles
    JEL: E32 G24 L26
    Date: 2016–06
  7. By: Giovanni Dosi; Valerie Revest; Alessandro Sapio
    Abstract: The evolutionary taxonomy of financial systems, outlined by Dosi (1990), argued that market-based systems would be comparatively more engaged in the exploration of new technological paradigms, as an outcome of market selective pressure, whereas the more institutionalized finance allocation in credit-based systems would give them an advantage in cumulative learning. This article offers a preliminary assessment of those conjectures in light of the institutional change associated with the financialization process and the "maximizing shareholders value" principle. The available evidence suggests that financialization has de-linked the performance of firms on the financial markets from the determinants of firm-level growth and innovation. Selection among companies increasingly occurs on financial markets, along criteria of short-term returns. As such, financialization has contributed to compress and somewhat degrade the specific properties of the finance-innovation nexus of both financial system archetypes, deteriorating both static and Schumpeterian efficiency.
    Keywords: Evolutionary Theory, Financial Systems, Firm growth, Innovation, Financialization
    Date: 2016–06–15
  8. By: Bogdan Genchev; Julie Holland Mortimer
    Abstract: Conditional pricing practices allow the terms of sale between a producer and a downstream distributor to vary based on the ability of the downstream firm to meet a set of conditions put forward by the producer. The conditions may require a downstream firm to accept minimum quantities or multiple products, to adhere to minimum market-share requirements, or even to deal exclusively with one producer. The form of payment from the producer to the downstream firm may take the form of a rebate, marketing support, or simply the willingness to supply inventory. The use of conditional pricing practices is widespread throughout many industries, and the variety of contractual forms used in these arrangements is nearly as extensive as the number of contracts. This paper reviews empirical evidence on these arrangements.
    JEL: K0 K2 K20 K21 L0 L4 L42
    Date: 2016–06
  9. By: Bloom, Nicholas (Stanford University); Sadun, Raffaella (Harvard Business School); Van Reenen, John (CEP, London School of Economics)
    Abstract: Are some management practices akin to a technology that can explain company and national productivity, or do they simply reflect contingent management styles? We collect data on core management practices from over 11,000 firms in 34 countries. We find large cross-country differences in the adoption of basic management practices, with the US having the highest size-weighted average management score. We present a formal model of "Management as a Technology", and structurally estimate it using panel data to recover parameters including the depreciation rate and adjustment costs of managerial capital (both found to be larger than for tangible non-managerial capital). Our model also predicts (i) a positive effect of management on firm performance; (ii) a positive relationship between product market competition and average management quality (part of which stems from the larger covariance between management with firm size as competition strengthens); and (iii) a rise (fall) in the level (dispersion) of management with firm age. We find strong empirical support for all of these predictions in our data. Finally, building on our model, we find that differences in management practices account for about 30% of cross-country total factor productivity differences.
    Keywords: management practices, productivity, competition
    JEL: L2 M2 O32 O33
    Date: 2016–06
  10. By: Tiziana Assenza (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Domenico Delli Gatti (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Jakob Grazzini (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Giorgio Ricchiuti
    Abstract: In his seminal paper, starting from the premise that productivity is heterogeneous across firms, Melitz (2003) nicely accounts for the stylized fact that the level of individual productivity is key in determining the capability of a firm to export. In this paper we build a model along Melitz’s lines to show that also financial capacity, captured by the level of individual net worth, affects the behaviour of firms on international markets. In our framework, in fact, the decision to export depends on both productivity and net worth, and both are heterogeneous across firms. We show that firms with low productivity may still be able to penetrate foreign markets provided they have enough net worth to incur the cost of exporting. However, even a really high net worth may not guarantee the presence in both domestic and foreign markets if the firm does not have a minimum level of productivity. Finally, we explore the effects of changes in transport costs, fixed costs for exporters and the financial constraints.
    Keywords: Productivity; Net Worth; International trade; Heterogeneous firms.
    JEL: E44 F12 F14 F21
    Date: 2016–06
  11. By: F. Vinas
    Abstract: Most studies analyzing the transmission of financial shocks to the real economy fail to uncover real effects at firm level. Taking into account banks' business models, this article attempts to fix that issue. Two banking models are considered: traditional and universal banks, the latter providing sophisticated financial services (market-making on derivatives, management of large commitments). Relying on a unique database on credits, banks and firms covering more than 5,000 firms over 2004-2009, the paper shows that in period of high liquidity, both models have a similar credit supply, but in liquidity crisis, universal banks had a significantly lower credit supply, contrary to traditional banks, leading to real effects on firm’s investment.
    Keywords: Crisis, Retail Bank, Universal Bank, Firm, Credit, Credit Line, Maturity, Long-Term Credit, Short-Term Credit, Liquidity, Investment.
    JEL: E22 E51 G01 G21 G24
    Date: 2016
  12. By: Ilin, Cornelia; Shi, Guanming
    Abstract: This study examines the effect of competition on price dispersion and argues that the effect is contingent on the ability of firms to meet market demand. Our comparative static results show that competition among symmetrically capacity-constrained firms leads to a price decrease in the lower tail of the price distribution and a price increase in the upper tail. In contrast, competition among symmetrically capacity-unconstrained firms, or among firms with asymmetric capacities leads to an overall price increase along the distribution function. To investigate these findings empirically, we use a novel data set from the U.S. corn seed industry with farm-firm-level sales information for conventional and genetically modified corn seeds between 2004 - 2009. We estimate the empirical model using the IV Quantile Regression, and found evidence consistent with the above mentioned comparative static results. The analysis also shows that capacity-unconstrained seed firms charge a price premium, confirming the positive relationship between product availability and pricing found in our theoretical model.
    Keywords: Market Structure, Capacity Constraints, Consumer Loyalty, Price Dispersion., Demand and Price Analysis, Industrial Organization, L11, L13, L66,
    Date: 2016–06–02
  13. By: Johannes Fedderke; Nonso Obikili; Nicola Viegi
    Abstract: This paper uses newly available firm-level tax data to evaluate the market structure in South African manufacturing sectors in the period 2010.12. To describe the market structure we compute markups for South African manufacturing firms and concentration indexes for 4-digit manufacturing sectors. We find both significant markups and significant concentration across most sectors.We compare computed markups and concentration with early estimates in South Africa and with other international benchmark countries. We then examine the market structure based on the concentration, firms. size, and entry and exit dynamics to rule out some potential explanations for relatively high markups. We find that the relationships are not monotonic and point to the importance of specific barriers to entry in explaining the relationship between these three characteristics.
    Keywords: Business, Manufacturing industries, Pricing
    Date: 2016
  14. By: Murphy, Gavin; Siedschlag, Iulia
    Abstract: Financing constraints have been identified as an additional source of firm heterogeneity that affects export participation and export performance. This paper examines whether and to what extent financing constraints affect firms' exporting across different types of firms and industries. It uses comparable micro data from France, Germany, Italy and Spain and estimates the sensitivity of firms' extensive and intensive margins of exporting to financing constraints. The empirical results indicate that firms which were less constrained financially were more likely to export, while financing constraints did not affect the export intensity of existing exporters. It appears that financing constraints affect export participation via firms' productivity. The sensitivity of exporting to access to external financing appears to be most important for young, domestic-owned and firms in traditional industries. The sensitivity of the export propensity to financing constraints decreased with firm size.
    Keywords: data/exporters/Firm heterogeneity/Productivity
    Date: 2016–04

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