nep-bec New Economics Papers
on Business Economics
Issue of 2016‒07‒16
nineteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Exploring Outward FDI and the Choice of Destination: Evidence from Swedish Firm-Level Data By El-Sahli, Zouheir; Gullstrand, Joakim; Olofsdotter, Karin
  2. Reassessing the link between firm size and exports By Hernández Martínez, Pedro Jesús
  3. The role of innovation and management practices in determining firm productivity in developing economies By Bartz, Wiebke; Mohnen, Pierre; Schweiger, Helena
  4. Liquidity, innovation, and endogenous growth By Malamud, Semyon; Zucchi, Francesca
  5. Health insurance coverage and firm performance: Evidence using firm level data from Vietnam By Hiroyuki Yamada; Tien Manh Vu
  6. Does Employee Stock Ownership Work? Evidence from publicly-traded firms in Japan By KATO Takao; MIYAJIMA Hideaki; OWAN Hideo
  7. Competitive Strategy, Performance Appraisal and Firm Results By Bayo-Moriones, Alberto; Galdon-Sanchez, Jose Enrique; Martinez-de-Morentin, Sara
  8. Matching firms, managers and incentives By Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
  9. Do diversity, creativity and localized competition promote endogenous firm formation? Evidence from a high-tech US industry By Tsvetkova, Alexandra
  11. Incentive schemes, private information and the double-edged role of competition for agents By Christina Bannier; Eberhard Feess; Natalie Packham; Markus Walzl
  12. Aggregate Consequences of Dynamic Credit Relationships By Stephane Verani
  13. Collateral damage? On collateral, corporate financing and performance By Cerqueiro, Geraldo; Ongena, Steven; Roszbach, Kasper
  14. Enhancing Export Opportunities for Small and Medium-Sized Enterprises By Caroline Freund; Gary Clyde Hufbauer; Euijin Jung
  15. Access to Credit and Investment Decisions of SMEs in China: size matters By Regis, Paulo José
  16. What Do Performance Appraisals Do? By Peter Cappelli; Martin Conyon
  17. Firm Entry and Exit during a Crisis Period Evidence from Russian Regions By Iwasaki, Ichiro; Maurel, Mathilde; Meunier, Bogdan
  18. Informal Sector Misallocation By López-Martín Bernabé
  19. Business, housing and credit cycles By Rünstler, Gerhard; Vlekke, Marente

  1. By: El-Sahli, Zouheir (Department of Economics, Lund University); Gullstrand, Joakim (Department of Economics, Lund University); Olofsdotter, Karin (Department of Economics, Lund University)
    Abstract: Using Swedish firm-level data on all firms and their affiliates abroad, we investigate what observable firm and country characteristics affect the size of affiliate firms in a particular destination. We employ the richness of the data to investigate the importance of destination country factors in explaining firm outward FDI activities and distinguish between the factors that affect such activities in manufacturing versus services firms as well as vertical versus horizontal investments. Our results lend support to existing theories of multinational activity, including observable differences between vertical and horizontal manufacturing firms, as well as between services and manufacturing FDI firms.
    Keywords: outward FDI; globalization; FDI destination; heterogeneous firms
    JEL: F10 F20
    Date: 2016–07–04
  2. By: Hernández Martínez, Pedro Jesús
    Abstract: The small average size of Spanish firms has been put forward as the main impediment to their international competitiveness. This paper re-examines the link between firm size and exports. The new theories of international trade emphasize firm heterogeneity as the theoretical basis of export behavior. In the context of this heterogeneity, the paper uses the quantile regression methodology to analyze the effect of firm size on firm export propensity (percentage of exported sales). The paper confirms the existence of a positive relationship between firm size and export intensity but finds that the conventional estimates of the elasticity of export propensity with respect to firm size on the average of the export propensities distribution underestimate the effect at the bottom of the distribution and overestimate the effect on most of it. Consequently, policies aimed at increasing exports should concentrate their efforts on increasing the size of those firms with lower export propensity.
    Keywords: exports,firm size,quantile regression,firm heterogeneity
    JEL: F14 L25
    Date: 2016
  3. By: Bartz, Wiebke (Centre for Development Finance, Frankfurt School of Finance and Management); Mohnen, Pierre (UNU‐MERIT, Maastricht University); Schweiger, Helena (European Bank for Reconstruction and Development)
    Abstract: In this paper, we compare the impacts of management practices and innovation on productivity, using data from a unique firm-level survey covering 30 mostly developing countries in Eastern Europe and Central Asia in the period 2011-2014. We adapt the well-established three-stage model by linking productivity to innovation activities and management practices. Results suggest that both returns to innovation and returns to management practices are important drivers of productivity in developing economies. However, productivity in lower-income economies is affected to a larger extent by management practices than by innovation while the opposite holds in higher-income economies. These results imply that firms operating in less favourable business environments can reap large productivity gains by improving the quality of management practices, before engaging in innovation through imitating and adapting foreign technologies.
    Keywords: innovation, management practices, productivity, developing countries
    JEL: M21 O12 O32
    Date: 2016–06–16
  4. By: Malamud, Semyon; Zucchi, Francesca
    Abstract: We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that financing constraints lead firms to decrease production but may spur investment in innovation (R&D). We characterize which firms should substitute production for innovation in the face of constraints and thus display a "gambling" type of behavior. We embed our firm dynamics into a model of endogenous growth and show that financing frictions have offsetting effects on economic growth. JEL Classification: D21, G31, G32, G35, L11
    Keywords: cash management, endogenous growth, financial constraints, innovation
    Date: 2016–06
  5. By: Hiroyuki Yamada (Faculty of Economics, Keio University); Tien Manh Vu (International Research Fellow of the Japan Society for the Promotion of Science, Osaka School of International Public Policy, Osaka University)
    Abstract: In literature, there is limited direct evidence regarding the effect of health insurance coverage on firm performance and worker productivity. In this paper, we study the impacts of health insurance on medium and large-scale domestic private firms' performance and productivity in Vietnam, using a large firm level census dataset. We deploy propensity-score matching methods, and find statistically positive health insurance effects on both aggregate profit and profit per worker for both complying and non-complying medium and large-scale firms. Given the full sample results, we recommend an improvement in government monitoring as one of the important policy options to induce medium and large-scale firms to contribute to health insurance premiums for their employees.
    Keywords: Health insurance, Medium and large-scale firms, Propensity-score matching, Vietnam
    JEL: D22 I13 I15 I18 O25
    Date: 2016–07
  6. By: KATO Takao; MIYAJIMA Hideaki; OWAN Hideo
    Abstract: This paper provides novel evidence on the effects of employee stock ownership (ESO), using new panel data on Japanese ESO plans for a highly representative sample of publicly-traded firms in Japan (covering more than 75% of all firms listed on Tokyo Stock Exchange) over 1989-2013. Unlike most prior studies, we focus on the effects of changes in varying attributes of existing ESO—the effects on the intensive margin. Our fixed effect estimates show that an increase in the strength of the existing ESO plans measured by stake per employee results in statistically significant productivity gains. Furthermore, such productivity gains are found to lead to profitability gains since wage gains from ESO plans are statistically significant yet rather modest. Our analysis of Tobin's Q suggests that the market tends to view such gains from ESO plans as permanent. We further find that increasing the stake of the existing core participants is more effective in boosting gains from ESO plans than bringing in more employees into the trust. Reassuringly, our key results are found to be robust to the use of instrumental variables to account for possible endogeneity of ESO plans. Finally, we explore possible interplays between ESO plans and firm characteristics such as ownership structure and firm size/age. First, the positive effects on productivity, profitability, wages and Tobin's Q are found to become larger as the proportion of powerful institutional investors and foreign investors rises, implying that the growing importance of such powerful outside shareholders may be reducing the adverse managerial entrenchment effect of ESO plans. Second, productivity gains from ESO plans are found to be more limited for smaller and younger firms. We interpret the finding as evidence in favor of the institutional complementarity view that ESO plans are an integral part of the Japanese High Performance Work System (HPWS)—a complementary cluster of human resource management practices which are more pervasive among larger and older firms in Japan.
    Date: 2016–06
  7. By: Bayo-Moriones, Alberto (University of Navarra); Galdon-Sanchez, Jose Enrique (Universidad Pública de Navarra); Martinez-de-Morentin, Sara (Universidad Pública de Navarra)
    Abstract: In this study, we address the relationship between performance appraisal and competitive strategy, as well as the impact of this relationship on firm performance. The results indicate that the adoption of developmental performance appraisal and the use of administrative performance appraisal are higher among firms that pursue differentiation strategies compared to those competing on costs. Regarding firm performance, the interaction between a developmental appraisal system and a quality strategy displays higher return on equity and sales per employee. Those firms that combine a focus on innovation with administrative performance appraisal also enjoy higher performance. Finally, when the firm competes on the basis of cost reduction, the use of administrative appraisal increases the sales per employee.
    Keywords: performance appraisal, competitive strategy, firm performance, developmental appraisal, administrative appraisal
    JEL: M12 M52
    Date: 2016–07
  8. By: Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
    Abstract: We exploit a unique combination of administrative sources and survey data to study the match between firms and managers. The data includes manager characteristics, such as risk aversion and talent; firm characteristics, such as ownership; detailed measures of managerial practices relative to incentives, dismissals and promotions; and measurable outcomes, for the firm and for the manager. A parsimonious model of matching and incentive provision generates an array of implications that can be tested with our data. Our contribution is twofold. We disentangle the role of risk-aversion and talent in de-termining how firms select and motivate managers. In particular, risk-averse managers are matched with firms whose compensation scheme depends less on performance. We also show that empirical findings linking governance, incentives, and performance that are typically observed in isolation, can instead be interpreted within a simple unified matching framework.
    JEL: N0
    Date: 2015–07
  9. By: Tsvetkova, Alexandra
    Abstract: This paper tests the effect of diversity, creativity and localized competition on firm formation in US computer and electronic product manufacturing within the knowledge spillover theory of entrepreneurship (KSTE) framework. Fixed effects instrumental variable estimation results support the KSTE contention of a positive relationship between knowledge and entrepreneurship. Industrial diversity and diversity of knowledge tend to promote endogenous firm entry, whereas evidence on other factors is mixed. This points to sensitivity of conclusions in the KSTE literature to regional and industrial environments and calls for caution in interpreting and generalizing findings obtained in various settings.
    Keywords: innovation, entrepreneurship, firm formation, knowledge spillover theory of entrepreneurship, computer and electronic product manufacturing
    JEL: O1 O3 R1 R11
    Date: 2016–04–19
  10. By: Lidia Mannarino; Valeria Pupo; Fernanda Ricotta (Dipartimento di Economia, Statistica e Finanza, Università della Calabria)
    Abstract: The main aim of this research is to investigate the influence the institutional environment has on the difference in performance between Italian family firms run by a family member and firms run by a professional manager. By using total factor productivity (TFP) as a measure of performance, we find that family-run firms are less productive than firms run by outside managers when institutional quality is high, but that the results are less obvious when institutional quality is low. The difference in performance is not significant, but by using the level of corruption as a measure of institutional quality, older family firms are found to be more productive than firms run by outside managers.
    Keywords: Family firms, TFP, Institutions
    JEL: G34 D24 O43
    Date: 2016–06
  11. By: Christina Bannier; Eberhard Feess; Natalie Packham; Markus Walzl
    Abstract: This paper examines the effect of imperfect labor market competition on the efficiency of compensation schemes in a setting with moral hazard and risk-averse agents, who have private information on their productivity. Two vertically differentiated firms compete for agents by offering contracts with fixed and variable payments. The superior firm employs both agent types in equilibrium, but the competitive pressure exerted by the inferior firm has a strong impact on contract design: For high degrees of vertical differentiation, i.e. low competition, low-ability agents are under-incentivized and exert too little effort. For high degrees of competition, high-ability agents are over-incentivized and bear too much risk. For a range of intermediate degrees of competition, however, agents' private information has no impact and both contracts are second-best. Interim efficiency of the least-cost separating allocation in the inferior firm is a sufficient condition for equilibrium existence. If this is violated, there can only be equilibria where the inferior firm ''overbids'', i.e. where it would not break even when attracting both agent types. Adding horizontal differentiation allows for pure-strategy equilibria even when there would be no equilibrium without overbidding in the pure vertical model, but equilibria with overbidding fail to exist.
    Keywords: Incentive compensation, screening, imperfect labor market competition, vertical differentiation, horizontal differentiation, risk aversion
    JEL: D82 D86 J31 J33
    Date: 2016–07
  12. By: Stephane Verani (Federal Reserve Board)
    Abstract: Which financial frictions matter in the aggregate? This paper presents a general equilibrium model in which entrepreneurs finance a firm with a long-term contract. The contract is constrained efficient because firm revenue is costly to monitor and entrepreneurs may default. The cost of monitoring firms and the entrepreneurs' outside options determine the significance of moral hazard relative to limited enforcement for financial contracting. Calibrating the model to the U.S. economy, I find that the relative welfare loss from financial frictions is about 5 percent in terms of aggregate consumption with moral hazard, while it is 1 percent with limited enforcement. Reforms designed to strengthen contract enforcement increase aggregate consumption in the short-run, but their long-run effects are modest when monitoring costs are high. Weak contract enforcement contribute to aggregate fluctuations by amplifying the effect of aggregate technological shocks, but moral hazard does not.
    Date: 2016
  13. By: Cerqueiro, Geraldo; Ongena, Steven; Roszbach, Kasper
    Abstract: In this paper, we investigate the economy-wide effects of the collateral channel by exploiting: (i) a legal reform in Sweden in 2004 that reduced collateral values, and (ii) a dataset that covers all incorporated firms in Sweden over the period 2000-2006. We find that the loss in collateral value reduces both the amount and the maturity of firm debt and leads firms to contract investment, employment, and assets. The legal reform may distort investment and asset allocation decisions, as firms that reduce their holdings of assets with low collaterizable value and firms that hold more liquid assets consequently become less productive and innovative. Our results therefore document the potency of a collateral channel outside of a crisis. JEL Classification: D22, G31, G32
    Keywords: collateral, differences-in-differences, financial constraints, floating lien, investment
    Date: 2016–06
  14. By: Caroline Freund (Peterson Institute for International Economics); Gary Clyde Hufbauer (Peterson Institute for International Economics); Euijin Jung (Peterson Institute for International Economics)
    Abstract: Small and medium-sized enterprises (SMEs) employ about half the American workforce, and as a result their needs are deemed important for the economic health of the United States. From this perspective, the fact that 98 percent of exporters are small businesses suggests that trade is a critical component to the economic vitality of SMEs. Proponents of trade agreements argue that such agreements open markets to businesses of all sizes and that simplifying customs and promoting e-commerce can especially help small businesses. But critics of trade agreements cite the relatively high share of total exports by large firms as an indication that large firms—and their investors—are the main beneficiaries of open markets. This Policy Brief examines the evidence for these conflicting claims and shows that exports from both small and large firms are boosted when trade barriers are reduced. Foreign market liberalization offers as much to small firms as it offers to large firms. One important difference is that exports from small firms are likely to be boosted by increased participation—i.e., more firms export when trade costs fall—while exports from large firms are more likely to grow in volume—i.e., each firm exports more.
    Date: 2016–06
  15. By: Regis, Paulo José (Division of Economics, Xi'an Jiaotong-Liverpool University)
    Abstract: Financial constraints are common in developing countries where financial systems are underdeveloped. In China, firms report access to finance is the most important obstacle in the business environment. This seems to be related to firms which fail to gain access to the credit market. We examine the likelihood of access to credit of firms where size and exporting seem to be key characteristics to consider. Credit constraints are significant to investment decisions. Together with size, access to credit is among the firm characteristics with the largest impact in the likelihood to invest.
    Keywords: access to finance, investment decision, Small and Medium-sized Enterprises, China
    JEL: G21 G32 O16 D52
    Date: 2015–08–03
  16. By: Peter Cappelli; Martin Conyon
    Abstract: This paper investigates employee performance appraisals using data from a single US firm between 2001 and 2007. We find that performance appraisals are both informative and drive important components of the employment contract. We find that employee appraisal scores vary considerably both between and within individuals over time. In addition, we show that employee performance appraisal scores are related to a range of important employment outcomes, including merit pay and bonuses, promotions, demotions and dismissals, as well as employee quits.
    JEL: J33 J41 J63
    Date: 2016–07
  17. By: Iwasaki, Ichiro; Maurel, Mathilde; Meunier, Bogdan
    Abstract: In this paper, we aim to empirically analyze the determinants of firm entry and exit in Russia using a regional-level panel data for the years of 2008-2014, with special emphasis on institutional failures and the politico-economic impact of external crises. We found that these two elements exhibit statistically significant and economically meaningful effects both on the creation and destruction of Russian firms, controlling for potentially explanatory factors. Our empirical results also suggest that the process of firm entry and exit is manifold across Russian regions due to their heterogeneity. Nevertheless, a surprisingly robust estimate of the world oil price (irrespective of the difference in target regions) suggests a possible high exposure of each Russian region to a global crisis. This comes from the importance of oil trade with the world and, accordingly, the ongoing crisis may bring a harmful influence to regeneration of Russian businesses.
    Keywords: firm entry, firm exit, institutions, economic integration, crisis, Russia
    JEL: D22 F15 G01 P31 P33
    Date: 2016–05
  18. By: López-Martín Bernabé
    Abstract: A quantitative framework of firm dynamics is developed where the size of the informal sector is determined by financial constraints and the burden of taxation. Improving access to credit for formal sector firms increases aggregate TFP and output while reducing the size of the informal sector. Introducing size-dependent taxes reduces the gains from financial development as they incentivize firms to produce at a relatively limited scale. The aggregate effects of eliminating formal sector registration costs are positive but modest relative to previous theoretical models and the gains generated by financial development, and consistent with empirical evidence based on micro-level data.
    Keywords: informal sector; misallocation; aggregate productivity; financial constraints; size-dependent taxes.
    JEL: E26 L11 O11 O17 O40
    Date: 2016–06
  19. By: Rünstler, Gerhard; Vlekke, Marente
    Abstract: We use multivariate unobserved components models to estimate trend and cyclical components in GDP, credit volumes and house prices for the U.S. and the five largest European economies. With the exception of Germany, we find large and long cycles in credit and house prices, which are highly correlated with a medium-term component in GDP cycles. Differences across countries in the length and size of cycles appear to be related to the properties of national housing markets. The precision of pseudo real-time estimates of credit and house price cycles is roughly comparable to that of GDP cycles. JEL Classification: C32, E32, E44
    Keywords: credit cycle, financial cycles, house prices, model-based filters, unobserved components models
    Date: 2016–06

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