nep-bec New Economics Papers
on Business Economics
Issue of 2016‒09‒11
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Learning, Confidence and Business Cycle By Hikaru Saijo; Cosmin Ilut
  2. License or entry in oligopoly By Hattori, Masahiko; Tanaka, Yasuhito
  3. (S,s) insights into the role of inventories in business cycles and high frequency fluctuations By Julia Thomas; Aubhik Khan
  4. Learning from crisis: Relational capital in lending relationships: Evidence from European family firms By Marco Cucculelli; Valentina Peruzzi; Alberto Zazzaro
  5. The Impact of Taxes on the Extensive and Intensive Margins of FDI By Ronald B Davies; Iulia Siedschlag; Zuzanna Studnicka
  6. The gradual evolution of buyer-seller networks and their role in aggregate fluctuations By Ryohei Hisano; Tsutomu Watanabe; Takayuki Mizuno; Takaaki Ohnishi; Didier Sornette
  7. The Impact of Product Market Reforms on Firm Productivity in Italy By Sergi Lanau; Petia Topalova
  8. Compatibility Choices under Switching Costs By Jeon, Doh-Shin; Menicucci, Domenico; Nasr, Nikrooz
  9. Natural resources and capital structure By Kurronen, Sanna
  10. Endogenous Growth, Firm Heterogeneity and the Long-run Impact of Financial Crises By Tom Schmitz
  11. Equilibrium Type of Competition with Horizontal Product Innovation By Negriu, A.
  12. From Firm-Level Imports to Aggregate Productivity; Evidence from Korean Manufacturing Firms Data By JaeBin Ahn; Moon Jung Choi

  1. By: Hikaru Saijo (University of California Santa Cruz); Cosmin Ilut (Duke University)
    Abstract: We construct and estimate a heterogeneous-firm business cycle model where firms face Knightian uncertainty about their profitability and learn it through production. The cross-sectional mean of firm-level uncertainty is high in recessions because firms invest and hire less. The higher uncertainty reduces agents' confidence and further discourages economic activity. This feedback mechanism endogenously generates properties traditionally explained through additional shocks or rigidities: countercyclical labor and financial wedges, co-movement driven by demand shocks, and amplified and hump-shaped dynamics. We find that endogenous idiosyncratic confidence reduces the empirical role of standard rigidities and changes inference about sources of fluctuations and policy experiments.
    Date: 2016
  2. By: Hattori, Masahiko; Tanaka, Yasuhito
    Abstract: We consider an incentive of a choice of options for an outside innovating firm to license its new cost reducing technology to incumbent firms, or to enter into the market with or without license in an oligopoly with three firms. We will show that under linear demand and cost functions the results depend on the size of the market. When the market size is large, license to two incumbent firms without entry strategy is the optimum strategy for the innovating firm. However, when the market size is not large, license to one incumbent firm with or without entry strategy may be optimum.
    Keywords: license, entry, oligopoly, innovating firm
    JEL: D43 L13
    Date: 2016–09–06
  3. By: Julia Thomas (Ohio State University); Aubhik Khan (Ohio State University)
    Abstract: We develop an equilibrium model to explain salient business cycle patterns involving aggregate production, sales and inventory investment alongside a distinct set of patterns at high frequencies. Our firms face idiosyncratic productivity shocks and fixed costs of ordering inputs, leading them to order infrequently and accumulate inventories. Thus, the model’s aggregate state vector includes a time-varying distribution of firms over productivities and inventories. Disciplined by data on aggregate inventories and firm-level sales and output, our model reproduces key patterns in the data at business cycle frequencies: Inventory investment is procyclical and positively correlated with final sales, GDP varies more than sales, and the inventory-to-sales ratio is countercyclical. These successes are robust to a wide range of micro-level parameters governing firms’ order costs and relative productivities, while those parameters are key to the model’s high-frequency performance. When order costs are more predictable and shifts in relative productivities are transitory, the model also performs well in key high frequency respects: The relative volatility of inventory investment rises sharply, and sales and inventory investment are negatively correlated, while both series maintain positive correlations with GDP. Despite these distinctions, our model predicts that aggregate fluctuations are surprisingly unaffected by inventories even at high frequencies.
    Date: 2016
  4. By: Marco Cucculelli (Università Politecnica delle Marche, Dipartimento di Scienze economiche e sociali); Valentina Peruzzi (Università Politecnica delle Marche, Dipartimento di Scienze economiche e sociali); Alberto Zazzaro (Università Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali, MoFiR - Ancona, Italy, CSEF, Naples, Italy)
    Abstract: In this paper we empirically investigate the effects of active family involvement in the company.s management on bank-firm lending relationships and access to credit. Based on the trade-off between relational and management human capital, we explore whether the relational capital embodied in the family leadership of the company influences the lending relationships with the main bank in terms of information sensitivity and duration. Then, we test whether family firms with family CEOs are more likely to experience a credit restriction from banks than family firms appointing professional CEOs external to the family. Results indicate that family businesses appointing family managers are significantly more likely to maintain soft-information-based and longer-lasting lending relationships. However, having family executives does not have a negative impact on firm.s access to credit, while the creation of soft-information-based and long-lasting lending relationships significantly reduces the likelihood of experiencing credit restrictions. In view of these findings, family relational capital seems to have a univocal beneficial impact on bank-firm relationship in our sample.
    Keywords: Family firm, family CEO, soft-information, relational capital, relationship lending, credit rationing
    JEL: D22 G21 G22
    Date: 2016–09
  5. By: Ronald B Davies; Iulia Siedschlag; Zuzanna Studnicka
    Abstract: The design of optimal tax policy, especially with respect to attracting FDI, hinges on whether taxes affect multinational firms at the extensive or the intensive margins. Nevertheless, the literature has not yet explored the simultaneous impact of taxation on FDI on these two margins. Using firm-level cross-border investments into Europe during 2004-2013, we do so with a Heckman two-step estimator, an approach which also allows us to endogenize the number of investments and include home country and parent firm characteristics. We find that taxes affect both margins, particularly for firms that invest only once, with 92 percent of tax-induced changes in aggregate inbound FDI driven by movements at the extensive margin. In addition, we find significant effects of both home country and parent firm characteristics, pointing towards the granularity of investment decisions.
    Keywords: Foreign direct investment; Taxation; Extensive margin; Intensive margin
    JEL: F23 F14 H25
    Date: 2016–08
  6. By: Ryohei Hisano (Social ICT Research Center, Graduate School of Information Science and Technology, The University of Tokyo); Tsutomu Watanabe (Graduate School of Economics, The University of Tokyo); Takayuki Mizuno (Information and Society Research Division, National Institute of Informatics); Takaaki Ohnishi (Social ICT Research Center, Graduate School of Information Science and Technology, The University of Tokyo); Didier Sornette (Department of Management, Technology and Economics, ETH Zurich, Swiss Federal Institute of Technology)
    Abstract: Buyer-seller relationships among firms can be regarded as a longi- tudinal network in which the connectivity pattern evolves as each firm receives productivity shocks. Based on a data set describing the evolu- tion of buyer-seller links among 55,608 firms over a decade and structural equation modeling, we find some evidence that interfirm networks evolve reflecting a firm's local decisions to mitigate adverse effects from neigh- bor firms through interfirm linkage, while enjoying positive effects from them. As a result, link renewal tends to have a positive impact on the growth rates of firms. We also investigate the role of networks in aggregate fluctuations.
    Date: 2016–08
  7. By: Sergi Lanau; Petia Topalova
    Abstract: This paper examines the role of removing obstacles to competition in product markets in raising growth and productivity. Using firm-level data from Italy during 2003–13 and OECD measures of product market regulation, we estimate the effect of deregulation in network sectors on value added and productivity of firms in these sectors, as well as firms using these intermediates in their production processes. We find evidence of a significant positive impact. These effects are more pronounced in Italian provinces with more efficient public administration, underscoring the complementarities of advancing public administration and product market reforms simultaneously.
    Keywords: Business enterprises;Italy;Industry;Services;Total factor productivity;Labor productivity;Markets;Fiscal reforms;Economic sectors;Time series;Econometric models;productivity, growth, structural reforms, product markets
    Date: 2016–06–15
  8. By: Jeon, Doh-Shin; Menicucci, Domenico; Nasr, Nikrooz
    Abstract: e study firms’ compatibility choices in the presence of consumers’ switching costs. We analyze both a model of once-and-for-all compatibility choices and that of dynamic choices. Contrary to what happens in a static setting in which firms embrace compatibility to soften the current competition (Matutes and Régibeau, 1988), when consumer lock-in arises due to a significant switching cost, firms make their products incompatible in order to soften future competition, regardless of the model we consider. This reduces consumer surplus and social welfare.
    Keywords: Compatibility, Incompatibility, Switching Cost, Lock-in
    JEL: D43 L13 L41
    Date: 2016–09
  9. By: Kurronen, Sanna
    Abstract: ​This paper examines the effect of natural resources on capital structure of the firm. Using an extensive dataset of listed firms in 70 countries, we show that firms operating in resource extraction industries have less debt and that that debt tends to have a longer maturity than that of other non-financial firms. Moreover, non-resource firms in resource-dependent countries are found to be less indebted than their counterparts in other countries. The results suggest that the very fact of a firm’s location in a resource-dependent country may be an overlooked country-specific de-terminant of firm capital structure and that financial institutions in resource-dependent countries may play a role in exacerbating a nation’s resource curse.
    Keywords: resource dependence, capital structure, panel data
    JEL: G32 O13 Q32
    Date: 2016–08–29
  10. By: Tom Schmitz (Università Bocconi)
    Abstract: I propose a new endogenous growth model with heterogeneous firms and aggregate shocks. The model shows that firm heterogeneity generates several new amplification and persistence mechanisms for a transitory shock to financing conditions. This shock imposes financing constraints, which force small and young innovating firms (with low retained earnings) to reduce their R&D, and therefore leads to R&D misallocation. Furthermore, it lowers entry and persistently reduces the mass of innovating firms. Thus, even as financing constraints disappear, aggregate R&D and innovation remain persistently depressed, as the remaining large firms can only imperfectly substitute for the R&D of the missing generation of young and small ones. Finally, lower R&D during and after the shock also limits the scope for incremental follow-up innovations. My model's main features are in line with developments in the Spanish manufacturing sector during the 2008-2013 economic and financial crisis.
    Date: 2016
  11. By: Negriu, A. (University of Amsterdam)
    Abstract: Singh and Vives (1984) consider a game where duopolists first commit to a strategic variable, quantity or price, and then compete in selling horizontally differentiated products. Here product substitutability is endogenized by allowing firms to undertake R&D investments to increase differentiation. This has important consequences for the determination of the equilibrium type of competition. Whereas in the original model Cournot competition always ensued in equilibrium, horizontal product innovation allows all types of market competition to be an equilibrium, depending on model parameters. As market size increases, the game of choosing the strategic variable changes structure. For small market size it is a dominance solvable game with Cournot competition as unique outcome. For higher market size, the firms face a Prisoner's Dilemma where Bertrand competition would be Pareto optimal, but Cournot competition is the non-cooperative Nash Equilibrium. As market size further increases, the game of choosing market variables becomes a Hawk-Dove game where, in pure strategy equilibrium, one firm sets quantity and the other sets price. When market size increases even further, setting prices will be the strictly dominant strategy and Bertrand competition is the unique equilibrium outcome for a relatively small parameter-range. Finally, for suffciently high market size all equilibria corresponding to differentiated duopoly abruptly dissappear and the market separates into two monopolies.
    Date: 2015
  12. By: JaeBin Ahn; Moon Jung Choi
    Abstract: Using the Korean manufacturing firm-level data, this paper confirms that three stylized facts on importing hold in Korea: the ratio of imported inputs in total inputs tends to be procyclical; the use of imported inputs increases productivity; and larger firms are more likely to use imported inputs. As a result, we find that firm-level import decisions explain a non-trivial fraction of aggregate productivity fluctuations in Korea over the period between 2006 and 2012. Main findings of this paper suggest a possible link between the recent global productivity slowdown and the global trade slowdown.
    Keywords: Imports;Korea, Republic of;Total factor productivity;Manufacturing sector;Econometric models;Time series;Firm-level imports, Productivity pro-cyclicality, Aggregate TFP growth
    Date: 2016–08–05

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