nep-bec New Economics Papers
on Business Economics
Issue of 2016‒07‒30
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  2. Export characteristics and output volatility: comparative firm-level evidence for CEE countries By Jaanika Meriküll; UrÅ¡ka ÄŒede; Bogdan Chiriacescu; Peter Harasztosi; Tibor Lalinsky
  3. Entrepreneurship and Income Distribution Dynamics: Why Are Top Income Earners Unaffected by Business Cycles? By Noh-Sun Kwark; Eunseong Ma
  4. Imports, supply chains, and firm productivity By Carol Newman; John Rand; Finn Tarp
  5. Liquidity, Innovation, And Endogenous Growth By Semyon MALAMUD; Francesca ZUCCHI
  6. Wage Changes in the Irish Labour Market: Within- and Between-Firm Effects By Donal O'Neill; Aedin Doris; Olive Sweetman
  7. Gender diversity in top-management positions in large family and nonfamily businesses By Kay, Rosemarie; Schlömer-Laufen, Nadine
  8. Average Skewness Matters! By Eric JONDEAU; Qunzi ZHANG
  9. Revisiting Capital Structure of Non-financial Public Firms in Turkey By Ramazan Karasahin; Doruk Kucuksarac
  10. What Role Did Management Practices Play in SME Growth Post-recession? By Alex Bryson; John Forth
  11. Firm financing and growth in the Arab region By Cortina Lorente,Juan Jose; Ismail,Soha Ismail Ahmed Aly; Schmukler,Sergio L.
  12. Common Ownership, Competition, and Top Management Incentives By Miguel Antón; Florian Ederer; Mireia Giné; Martin Schmalz
  13. Does gender diversity in the boardroom influence Tobin’s Q of Croatian listed firms? By Tomislava Pavic Kramaric; Toni Milun; Ivan Pavic

  1. By: Fernanda Ricotta (Dipartimento di Economia, Statistica e Finanza, Università della Calabria)
    Abstract: This paper examines the effect of the quality of regional government (QoG) on firm Total Factor Productivity (TFP) in a multi-country context. The analysis is based on comparable cross-country data of manufacturing firms operating in seven European countries (Austria, France, Germany, Hungary, Italy, Spain and the United Kingdom). The measure of the ‘quality of government’ is the European quality of government index (EQI), calculated at regional level over twenty-seven EU members. To disentangle internal from external productivity drivers, the multilevel approach is employed. Results refer to 2008 and show, as expected, the importance of firm-specific determinants of TFP. As far as the specific scope of this paper is concerned, firms located in regions with high quality regional government show higher levels of TFP. When considering the QoG components, corruption and the quality of services positively affect TFP, while the evidence is inconclusive for impartiality.
    Keywords: Institutions, firm performance, European regions, multilevel model
    JEL: O43 D24 C30
    Date: 2016–07
  2. By: Jaanika Meriküll; UrÅ¡ka ÄŒede; Bogdan Chiriacescu; Peter Harasztosi; Tibor Lalinsky
    Abstract: The literature shows that openness to trade improves longterm 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.
    Keywords: export diversification, export share, volatility of sales, business cycle, Central and Eastern Europe, CEE
    JEL: F14 F43 O57
    Date: 2016–07–12
  3. By: Noh-Sun Kwark (Department of Economics, Sogang University, Seoul); Eunseong Ma (Department of Economics, Texas A&M University, College Station)
    Abstract: Business cycles affect income shares of low- and high-income groups in the U.S. econ- omy. Income shares of the bottom three income quintiles are procyclical; while those of the other quintiles are countercyclical. However, the very top ?ve percent income group is unaffected by the business cycle. This study attempts to explain the cyclical behavior of the income distribution over the business cycle, focusing on the top ?ve percent in- come earners?share, by incorporating an entrepreneurial choice to a heterogeneous agent model with indivisible labor. Two main results emerge. First, the model economy success- fully reproduces the acyclical behavior of the income share of the top ?ve percent income earners. Economic expansions allow top income earners to have more entrepreneurial op- portunities, which o¢´set a decline in the income share of the top income earners from the workers?side. Second, the model economy replicates reasonably well the income transition matrices over occupational choices obtained from the U.S. data, which documents that entrepreneurial activities are shown to be related to upward movement to higher income groups.
    Keywords: Income distribution dynamics, Heterogeneity, Entrepreneurs
    Date: 2016–04
  4. By: Carol Newman; John Rand; Finn Tarp
    Abstract: This paper explores the relationship between imports and firm productivity, focusing on imported intermediates. Using firm-level data on over 20,000 manufacturing firms in Viet Nam, we find evidence for competition-induced productivity gains from trade. We show that gains in intermediate sectors spill-over to downstream sectors such that firms using more inputs from import-intensive sectors experience higher productivity gains. The evidence indicates that the main source of spill-over is better quality, domestically produced inputs. Ignoring the gains from trade through this mechanism may significantly underestimate the impact of trade on productivity.
    Keywords: imports, supply chains, productivity, Viet NamCreation-Date: 2016
  5. By: Semyon MALAMUD (Ecole Polytechnique Federale de Lausanne and Swiss Finance Institute); Francesca ZUCCHI (Ecole Polytechnique Federale de Lausanne and Swiss Finance Institute)
    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 liquidity constraints unambiguously lead firms to decrease their production rate but, surprisingly, may spur investment in innovation (R&D). Using the model, we characterize which firms substitute production for innovation when constrained and thus display a non-monotonic relation between cash reserves and R&D. We embed our single-firm dynamics in a Schumpeterian model of endogenous growth and demonstrate that financing frictions have an ambiguous effect on economic growth.
    Keywords: Innovation, Cash management, Financial constraints, Endogenous growth, Creative destruction
    JEL: D21 G31 G32 G35 L11
  6. By: Donal O'Neill (Department of Economics, Finance and Accounting, Maynooth University.); Aedin Doris (Department of Economics, Finance and Accounting, Maynooth University.); Olive Sweetman (Department of Economics, Finance and Accounting, Maynooth University.)
    Abstract: During the Great Recession many Irish workers experienced nominal earnings cuts The proportion of all job stayers suffering earnings cuts trebled in the peak crisis years, with over 55% of workers receiving earnings cuts at the height of the crisis. However, while earnings cuts were common the evidence suggests substantial heterogeneity in earnings dynamics; at the same time as many workers were experiencing cuts, a substantial minority of workers continuing to receive earnings rises throughout the crisis. In this paper we use a unique dataset containing earnings data on every worker in every firm in Ireland from 2005-2013 to examine the relative role of worker and firm characteristics in explaining the observed heterogeneity in earnings dynamics. Our results show that firm effects play a smaller role in determining pay changes in Ireland. Although firm effects become more important in the peak year of the economic crisis, even then the vast majority of earnings changes continue to be driven by within firm rather than between firm forces. These finding raise a number of important questions about the role of morale and fairness in the wage setting process.
    Date: 2016
  7. By: Kay, Rosemarie; Schlömer-Laufen, Nadine
    Abstract: (Why) does the sex ratio in top-management positions in large family and nonfamily businesses differ? Using a unique data set and estimating (fractional) logit regressions we show that the female share in top-management positions in family businesses exceeds the one in nonfamily businesses. One reason is the selection mechanism social homophily from which females in family businesses benefit more because of a higher female share in the decision making body in family businesses. Another reason is the pathway self-appointment as (co-) leader of one's own business which is more common in family businesses. Nepotism seems not to play a role.
    Keywords: gender diversity,top-management positions,family businesses,selection mechanisms,pathways into top-management
    JEL: J16 M14 M51
    Date: 2016
  8. By: Eric JONDEAU (University of Lausanne and Swiss Finance Institute); Qunzi ZHANG (Shandong University)
    Abstract: This paper investigates using the average skewness, which is defined as the average of the monthly skewness values across firms, to predict future market return. Although the empirical evidence is not conclusive about the predictive ability of the average volatility, we show that in contrast, the average skewness performs very well at predicting the future market return when it is introduced in conjunction with the current market return. This result holds for several alterations of the main specification: the average skewness can be computed as the value-weighted or equal-weighted average of firms' skewness. The result holds after controlling for the size or liquidity of the firms or for the current business cycle conditions, and it also holds when the skewness is defined as the cross-section skewness of the monthly firm's returns or when it is filtered for the market return (idiosyncratic skewness). We also find that the average skewness compares favorably with the other usual suspects at predicting subsequent market return. The average skewness generates better out-of-sample performances in an allocation strategy based on market return predictions.
    Keywords: Return predictability, average skewness, idiosyncratic skewness
    JEL: G11 G12 G14 G17
  9. By: Ramazan Karasahin; Doruk Kucuksarac
    Abstract: This study investigates the determinants of capital structure of non-financial public firms quoted in Borsa Istanbul. We explore the effects of firm-specific, industry-specific and macroeconomic variables on book and market leverages by employing panel data. In addition, we study the effects of these variables on short-term and long-term leverage ratios. The results indicate that firm-specific factors have similar effects on both book and market leverage ratios except the effect of growth opportunity. The size of a firm is positively associated with its leverage ratio, particularly with long-term leverage ratio. Tangibility is negatively related to the short-term leverage ratio whereas it is positively related to the long-term leverage ratio. Profitability and liquidity have negative effects on leverage, particularly on short-term leverage ratio. It is also observed that the firms tend to follow their peers in their capital structure decisions. The effect of macroeconomic variables is somewhat more ambiguous. There seems to be positive association between inflation and leverage. On the other hand, firm leverage and economic growth are negatively related. Lastly, recursive panel regression methods show that the evolution of the parameter estimates are stable over time.
    Keywords: Leverage, Capital structure, Nonfinancal firms
    JEL: G32 G30
    Date: 2016
  10. By: Alex Bryson (University College London, National Institute of Social and Economic Research and Institute for the Study of Labor); John Forth (National Institute of Social and Economic Research)
    Abstract: Small and medium-sized enterprises (SMEs) are known to contribute significantly to aggregate economic growth. However, little is known about the role played by management practices in SME growth since recession. We contribute to the literature on SME growth by analysing longitudinal administrative data on firms' employment and turnover, taken from the UK's Business Structure Database (BSD), with data on management practices collected in face-to-face interviews from the HR Managers and employees who were surveyed as part of the 2011 British Workplace Employment Relations Survey (WERS). We find off-the-job training is the only management practice that is robustly and significantly associated with higher employment growth, increased turnover, and a decline in closure probabilities, over the period 2011-2014. The findings suggest SME investment in off-the-job training is sub-optimal in Britain such that firms could benefit economically from increasing the amount of off-the-job training they offer to their non-managerial employees.
    Keywords: SMEs; small and medium-sized enterprises; employment growth; sales; workplace closure; HRM; training; recession
    JEL: L25 M12 M50 M53
    Date: 2016–07–11
  11. By: Cortina Lorente,Juan Jose; Ismail,Soha Ismail Ahmed Aly; Schmukler,Sergio L.
    Abstract: This paper documents how firms in Arab countries issue equity, corporate bonds, and syndicated loans in domestic and international markets to obtain financing and grow. Using a new data set on issuance activity and firm performance, the paper finds that capital raising through these markets has grown rapidly since the early 1990s and involved an increasing number of issuing firms. Whereas the amounts raised (relative to gross domestic product) in equity and loan markets stand well with respect to international standards, bond issuance activity lags behind. Yet, bond financing has gained importance over time. Equity issuances primarily take place domestically, while bonds and loans are mostly issued internationally, display long maturities, and entail low levels of credit risk. Issuing firms are larger, grow faster, and are more leveraged than non-issuers. While issuers tend to be larger ex ante than non-issuers, the size gap between them seems to widen over time.
    Date: 2016–07–20
  12. By: Miguel Antón (IESE Business School, Universidad de Navarra); Florian Ederer (Cowles Foundation, Yale University); Mireia Giné (IESE Business School, Universidad de Navarra); Martin Schmalz (University of Michigan)
    Abstract: Standard corporate finance theories assume the absence of strategic product market interactions or that shareholders don’t diversify across industry rivals; the optimal incentive contract features pay-for-performance relative to industry peers. Empirical evidence, by contrast, indicates managers are rewarded for rivals’ performance as well as for their own. We propose common ownership of natural competitors by the same investors as an explanation. We show theoretically and empirically that executives are paid less for own performance and more for rivals’ performance when the industry is more commonly owned. The growth of common ownership also helps explain the increase in CEO pay over the past decades.
    Keywords: Common ownership, competition, CEO pay, management incentives, governance
    JEL: D21 G30 G32 J31 J41
    Date: 2016–07
  13. By: Tomislava Pavic Kramaric (University of Split - University Department for Professional Studies); Toni Milun (Algebra University College); Ivan Pavic (University of Split - Faculty of Economics)
    Abstract: Gender diversity has attracted attention of scientists and practitioners of different fields. Despite the efforts and progress that has been made towards achieving gender equality in the workplace this has remained the weak point especially in the context of management and supervisory board positions. Therefore, the authors wanted to investigate whether this is true for Croatian listed companies. The hypotheses that women in leading positions has a positive impact on performance Croatian listed companies is tested using Tobin’s Q indicator for the year 2014 whereas explanatory variables comprise different corporate governance variables such as Shannon index, Blau index, gender of the president of the management and supervisory board, share of women etc. The analysis is performed by using different empirical research methods including linear regression. The main findings are that women acting as the presidents of the management board positively influence performance. Moreover, having more women in the management board also has beneficial effects on financial success of the firm.
    Keywords: Tobin’s Q; gender diversity; board of directors
    JEL: G00 G19 G30

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