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on Business Economics |
| By: | Bernard, Andrew B.; Okubo, Toshihiro |
| Abstract: | This paper explores role of product adding and dropping within manufacturing firms over the business cycle. While a substantial body of work has explored the importance of the extensive margins of firm entry and exit in employment and output flows, only recently has research begun to examine the adjustment across products within firms and its importance for firm and aggregate output and employment flows. Using a novel, annual firm-product data set covering all Japanese manufacturing firms with more than 4 employees from 1992 to 2006, we provide the first evidence on annual changes in product adding and dropping by continuing firms over the business cycle. We find very high rates of product adding and dropping by continuing firms between the last year of the recession and the first year of the subsequent expansion and offer an explanation and supporting evidence based on a "trapped factors" model of firm behavior. |
| Keywords: | multi-product firms; product adding; product dropping; trapped factors |
| JEL: | E32 L11 L21 L25 L60 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11509&r=bec |
| By: | Tanaka, Yasuhito; Satoh, Atsuhiro |
| Abstract: | We examine maximin and minimax strategies for firms in asymmetric duopoly with differentiated goods. We consider two patterns of game; the Cournot game in which strategic variables of the firms are their outputs, and the Bertrand game in which strategic variables of the firms are the prices of their goods. We call two firms Firm A and B, and will show that the maximin strategy and the minimax strategy in the Cournot game, and the maximin strategy and the minimax strategy in the Bertrand game are all equivalent for each firm. However, the maximin strategy (or the minimax strategy) for Firm A and that for Firm B are not necessarily equivalent, and they are not necessarily equivalent to their Nash equilibrium strategies in the Cournot game nor the Bertrand game.. But, in a special case, where the objective function of Firm B is the opposite of the objective function of Firm A, the maximin strategy for Firm A and that for Firm B are equivalent, and they constitute the Nash equilibrium both in the Cournot game and the Bertrand game. This special case corresponds to relative profit maximization by the firms. |
| Keywords: | maximin strategy, minimax strategy, duopoly |
| JEL: | C72 D43 |
| Date: | 2016–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73925&r=bec |
| By: | Barney Hartman-Glaser; Hanno Lustig; Mindy X. Zhang |
| Abstract: | Among U.S. publicly traded firms, the average firm's capital share has declined, even though the aggregate capital share has increased. We attribute the secular increase in the aggregate capital share among these firms to an increase in firm size inequality that is only partially mitigated by an increase in inter-firm labor compensation inequality. We develop a model in which firms optimally provide managers with insurance against firm-specific shocks. Consequently, larger, more productive firms return a larger share of rents to shareholders, while less productive firms endogenously exit. An increase in firm-level risk lowers the threshold at which firms exit and increases the measure of firms in the right tail of the size distribution. As a result, such an increase always increases the aggregate capital share in the economy, but may lower the average firm's capital share. |
| JEL: | E25 G30 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22651&r=bec |
| By: | Pan, Yihui (University of Utah); Wang, Tracy Yue (University of Minnesota); Weisbach, Michael S. (Ohio State University) |
| Abstract: | Management risk, which reflects uncertainty about the management's value added, is an important yet unexplored determinant of a firm's default risk and debt pricing. CDS spreads, loan spreads and bond yield spreads all increase at the time of management turnover, when management risk is highest, and decline over the first three years of CEO and CFO tenure, regardless of the reason for the turnover. These effects all vary with the ex ante uncertainty about the new management. Understanding the effects of management risk on corporate liabilities has a number of implications for the pricing of liabilities and corporate financial management. |
| JEL: | G32 G34 M12 M51 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2016-06&r=bec |
| By: | Aoki, Shuhei; Nirei, Makoto |
| Abstract: | We construct a tractable neoclassical growth model that generates Pareto's law of income distribution and Zipf's law of the firm size distribution from idiosyncratic, firm-level productivity shocks. Executives and entrepreneurs invest in risk-free assets as well as their own firms' risky stocks, through which their wealth and income depend on firm-level shocks. By using the model, we evaluate how changes in tax rates can account for the evolution of top incomes in the U.S. The model matches the decline in the Pareto exponent of the income distribution and the trend of the top 1% income share in recent decades. |
| Keywords: | income distribution; wealth distribution; Pareto exponent; top income share; firm size distribution; Zipf's law |
| JEL: | D31 L11 O40 |
| Date: | 2016–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73896&r=bec |
| By: | Stamatopoulos, Ioannis; Hadjidema, Stamatina; Eleftheriou, Konstantinos |
| Abstract: | This paper examines the determinants of the variability in corporate effective tax rates before and after the beginning of the financial crisis in Greece. Analyzing firm-level data for the period between 2000 - 2014, we find strong evidence that specific firm characteristics including firm size, financial leverage, capital and inventory intensity influence the level of corporate effective tax rates. Our results also indicate that corporate effective tax rates and their association with the firm-specific characteristics were significantly influenced in the sub-period after the beginning of the financial crisis. Our findings may have important implications both for policy makers and firms. |
| Keywords: | corporate taxation; financial crisis; Greece; tax determinants |
| JEL: | H25 |
| Date: | 2016–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73787&r=bec |
| By: | Bartram, Sohnke M. (University of Warwick); Brown, Gregory W. (University of North Carolina); Stulz, Rene M. (Ohio State University and European Corporate Governance Institute) |
| Abstract: | From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the strength of the relation, the relation is strong for the most liquid stocks. The relation has roots in fundamentals as higher market risk predicts greater idiosyncratic earnings volatility and as firm characteristics related to the ability of firms to adjust to higher uncertainty help explain the strength of the relation. Consistent with the view that growth options provide a hedge against macroeconomic uncertainty, we find evidence that the relation is weaker for firms with more growth options. |
| JEL: | G10 G11 G12 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2016-13&r=bec |
| By: | Jaan Masso; Priit Vahter |
| Abstract: | This paper investigates knowledge spillovers through labour mobility from multinational enterprises (MNEs) to domestic firms. Despite the recent increased interest in this particular channel of MNE spillovers, there is a need to understand how such effects of managerial labour mobility from MNEs function in more detail. Based on employer-employee level data from Estonia, we find that higher firm and individual-level performance associated with hiring MNE-experienced managers and top specialists especially tends to reflect the export experience of these employees. A channel for how these spillovers function appears to be the increase in the propensity to export by domestic firms. The contribution of external international experience is especially strong in the first stages of the internationalisation of a firm and for entry into nearby markets. There is no evidence of the effects of MNE experience on the intensity of exports. |
| Keywords: | multinational enterprise, knowledge spillovers, export entry, labour mobility |
| JEL: | F10 F23 J62 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mtk:febawb:99&r=bec |
| By: | Patricia AUGIER (FERDI); Olivier CADOT (Faculté des hautes études commerciales - Université de Lausanne); Marion DOVIS (FERDI) |
| Abstract: | This paper combines a new database on non-tariff measures (NTMs) with Morocco’s firm census to explore the effect of regulatory harmonization with the E.U. on firm-level outcomes. Exploiting cross-sectoral variation in the timing and extent of regulatory harmonization, we find that harmonization waves correlate with rises in labor productivity and with higher markups, allowing self-financing of the adaptation process at the firm level. We identify an induced market-structure change that made the observed rise in markups possible. Namely, harmonization temporarily sheltered the Moroccan market from competition from low-end producers in other developing countries, who took time to adapt. We identified this effect through changes in both trade patterns and firm-level outcomes. Thus, harmonization apparently generated a self-financing adaptation process by affecting both firm-level incentives and market structure.Keywords : Morocco, Trade, Non-Tariff Measures, Firms, Harmonization, Profit, Productivity |
| Keywords: | Morocco; Trade; Non-Tariff Measures; Firms; Harmonization; Profit; Productivity |
| JEL: | F13 F15 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:fdi:wpaper:3163&r=bec |
| By: | Olivier CADOT (Faculté des hautes études commerciales - Université de Lausanne); Patricia AUGIER (FERDI); Marion DOVIS (FERDI) |
| Abstract: | This paper combines a new database on non-tariff measures (NTMs) with Morocco’s firm census to explore the effect of regulatory harmonization with the E.U. on firm-level outcomes. Exploiting cross-sectoral variation in the timing and extent of regulatory harmonization, we find that harmonization waves correlate with rises in labor productivity and with higher markups, allowing self-financing of the adaptation process at the firm level. We identify an induced market-structure change that made the observed rise in markups possible. Namely, harmonization temporarily sheltered the Moroccan market from competition from low-end producers in other developing countries, who took time to adapt. We identified this effect through changes in both trade patterns and firm-level outcomes. Thus, harmonization apparently generated a self-financing adaptation process by affecting both firm-level incentives and market structure.Keywords : Morocco, Trade, Non-Tariff Measures, Firms, Harmonization, Profit, Productivity |
| Keywords: | Morocco; Trade; Non-Tariff Measures; Firms; Harmonization; Profit; Productivity |
| JEL: | F13 F15 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:fdi:wpaper:3162&r=bec |
| By: | Gagnepain, Philippe; Ivaldi, Marc |
| Abstract: | This article focuses on the life insurance industry in France and attempts to shed light on whether the insurers behave in a competitive fashion, or whether, on the contrary, they take coordinated decisions. We propose several empirical tests, which entail the estimation of the Boone indicator, a tool which explores the relationship between firms’ relative costs and profits, the evaluation of the switching costs beard by consumers when they decide to change insurer, and the construction of a structural model, which is based on an oligopolistic framework where insurers propose differentiated products. Our results suggest unambiguously that firms do follow a competitive behavior. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:30840&r=bec |
| By: | Bennett, Benjamin (Ohio State University); Gopalan, Radhakrishnan (Washington University in Saint Louis); Thakor, Anjan V. (Washington University in Saint Louis and European Corporate Governance Institute) |
| Abstract: | While executive compensation is often blamed for the excessive risk taking by banks, little is known about the operating performance incentives used in the finance industry both prior to and subsequent to the recent crisis. We provide a comprehensive analysis of incentive design -- the link of compensation to operating performance -- in financial firms and compare incentive structures in financial firms to those in non-financial firms. Top executives in financial firms are paid less than their counterparts in non-financial firms of similar size and performance. Banks (and insurance firms) link a larger fraction of top executive pay to short-term accounting metrics like ROE and EPS and a smaller fraction to (long-term) stock price. Performance targets for bankers are not related to the risk of the bank, and ROE targets are not appropriately adjusted for leverage. Consequently, the design of executive compensation in banking may encourage both high leverage and risk-taking, and our evidence provides a potential explanation for the strong positive correlation that we document between the extent of short-term pay for bank CEOs and the risk of the bank before the financial crisis. |
| JEL: | F34 G32 G33 G38 K42 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2016-12&r=bec |