nep-bec New Economics Papers
on Business Economics
Issue of 2016‒10‒02
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. Intangible Investment and Firm Performance By Nathan Chappell; Suzi Kerr
  2. Reading Managerial Tone: How Analysts and the Market Respond to Conference Calls By Druz, Marina; Wagner, Alexander F.; Zeckhauser, Richard J.
  3. Taxation and Corporate Risk-Taking By Langenmayr, Dominika; Lester, Rebecca
  4. Investment under Uncertainty in Electricity Generation By Klaus Gugler; Mario Liebensteiner; Adhurim Haxhimusa; Nora Schindler
  5. Sorry, We're Closed: Loan Conditions When Bank Branches Close and Firms Transfer to Another Bank By Diana Bonfim; Gil Nogueira; Steven Ongena
  6. The Booms and Busts of Beta Arbitrage By Huang, Shiyang; Lou, Dong; Polk, Christopher
  7. CEO Personality and Firm Policies By Gow, Ian D.; Kaplan, Steven N.; Larcker, David F.; Zakolyukina, Anastasia A.
  8. Learning, Termination, and Payout Policy in Dynamic Incentive Contracts By DeMarzo, Peter M.; Sannikov, Yuliy
  9. Resolving Strategic Integration Challenges in the Multibusiness Firm: Meg Whitman Moves from Better Together to Splitting HP in Two By Burgelman, Robert A.
  10. Determinants of firm location choice in metropolitan cities in India: A binary Logit model analysis By Tripathi, Sabyasachi; Kumar, Shamika
  11. Why Family Matters: The Impact of Family Resources on Immigrant Entrepreneurs’ Exit from Entrepreneurship By Bird, Miriam; Wennberg, Karl

  1. By: Nathan Chappell (Motu Economic and Public Policy Research); Suzi Kerr (Motu Economic and Public Policy Research)
    Abstract: We combine survey and administrative data for about 13,000 firms from 2005 to 2013 to study the inter-relationships among firm characteristics, intangible investment and firm performance. We find that firm size is associated with higher intangible investment, while firm age, very low competition (‘captive market’) and very high competition (‘many competitors, none dominant’) are associated with lower intangible investment. Relating intangible investment to subsequent firm performance, we find that higher investment is associated with higher labour and capital input and higher revenue, relative to what would otherwise have been predicted. We also find that higher investment is associated with higher firm-reported employee and customer satisfaction, but is not associated with higher productivity or profitability. While we cannot estimate a causal model, the evidence suggests that intangible investment is associated with firm strategies related to growth and possibly to ‘soft’ performance objectives, but not to productivity or profitability.
    Keywords: Intangible investment; productivity; firm performance; industrial policy
    JEL: D22 D24 L21
    Date: 2016–09
  2. By: Druz, Marina (Flextronics, San Jose); Wagner, Alexander F. (Swiss Finance Institute); Zeckhauser, Richard J. (Harvard University)
    Abstract: Conference call tone predicts future earnings and uncertainty. "Tone disappointment" (excessive negativity) predicts more strongly than "tone delight" (excessive positivity). However, analysts and investors respond more quickly to delight than disappointment. Consequently, stock prices drift downward after their initial reaction to tone disappointment. Tone surprises move stock prices more in those firms where tone surprise predicts earnings and uncertainty more strongly. These results hold even after controlling for negativity of words in the earnings press release, analyst expectations, the firm's recent performance, and CEO fixed effects. Together, these coherent results suggest that market participants distill value-relevant information from conference calls.
    Date: 2015–01
  3. By: Langenmayr, Dominika (Catholic University of Eichstatt-Ingolstadt and CESifo, Munich); Lester, Rebecca (Stanford University)
    Abstract: We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risktaking is positively related to the length of tax loss periods because the loss rules shift some risk to the government; and second, the tax rate has a positive effect on risk-taking for firms that expect to use losses, and a negative effect for those that cannot. Thus, the sign of the tax effect on risky investment hinges on firm-specific expectations of future loss recovery.
    JEL: G32 H25 H32
    Date: 2016–08
  4. By: Klaus Gugler (Department of Economics and Research Institute for Regulatory Economics, Vienna University of Economics and Business); Mario Liebensteiner (Department of Economics, Vienna University of Economics and Business); Adhurim Haxhimusa (Research Institute for Regulatory Economics, Vienna University of Economics and Business); Nora Schindler (Department of Economics, Vienna University of Economics and Business)
    Abstract: The recent transformation of European electricity markets with increasing generation from intermittent renewables brings about many challenges. Among them, decaying wholesale prices, partly due to support schemes for renewables, may send insufficient investment signals for other technologies. We investigate the investment decision in a structural equation based on the Tobin’s q-model, which we extend by both industry- and firm-technology-specific uncertainty. We utilize rich and novel data at the disaggregated firm generation technology level of European electricity generating firms for the period 2006–2014. Our results show that investment in any generation technology follows market incentives despite sunk and irreversible capital, confirming the implications of the q-model. Moreover, while firm-technology-specific uncertainty decreases firms’ investment activity, especially in coal and gas, aggregate uncertainty triggers firms’ investment. Our results raise concerns about system reliability in the long run since conventional technologies still serve as a flexible system back-up.
    Keywords: Tobin's q, Uncertainty, Investment, Electricity
    JEL: L22 L25 L51 Q48
    Date: 2016–09
  5. By: Diana Bonfim; Gil Nogueira; Steven Ongena
    Abstract: We study loan conditions when bank branches close and firms subsequently transfer to a branch of another bank in the vicinity. Such transfer loans allow us for the first time to observe the conditions granted when banks pool-price new applicants. Consistent with recent theoretical work on hold up in bank-firm relationships we find that transfer loans do not receive the discount in loan rates that prevails when firms otherwise switch banks. We hereby critically augment recent empirical evidence on dynamic cycles in loan rates.
    JEL: G21 L11 L14
    Date: 2016
  6. By: Huang, Shiyang; Lou, Dong; Polk, Christopher
    Abstract: Low-beta stocks deliver high average returns and low risk relative to high-beta stocks, an opportunity for professional investors to “arbitrage†away. We argue that beta-arbitrage activity instead generates booms and busts in the strategy’s abnormal trading profits. In times of low activity, the beta-arbitrage strategy exhibits delayed correction, taking up to three years for abnormal returns to be realized. In stark contrast, when activity is high, prices overshoot as short-run abnormal returns are much larger and then revert in the long run. These cyclical patterns also show up in hedge fund exposures to beta arbitrage, particularly exposures of smaller and thus more nimble funds, and can be linked to the past performance of the strategy. We document a novel positive-feedback channel operating through firm-level leverage that facilitates these boom and bust cycles.
    Keywords: betting against beta; crowded trades; positive-feedback trading
    JEL: G02 G12 G14 G23
    Date: 2016–09
  7. By: Gow, Ian D. (Harvard University); Kaplan, Steven N. (University of Chicago); Larcker, David F. (Stanford University); Zakolyukina, Anastasia A. (University of Chicago)
    Abstract: Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conferences calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices and firm operating performance.
    Date: 2016–07
  8. By: DeMarzo, Peter M. (Stanford University); Sannikov, Yuliy (Princeton University)
    Abstract: We study a principal-agent setting in which both sides learn about future profitability from output, and the project can be abandoned/terminated if profitability is too low. With learning, shirking by the agent both reduces output and lowers the principal's estimate of future profitability. The agent can exploit this belief discrepancy and earn information rents, reducing his incentives to exert effort. The optimal contract controls information rents to improve incentives by distorting the termination decision. Our results capture the transition from a young, financially constrained firm to a mature firm that pays dividends. For young firms, poor performance permanently raises the termination threshold, as doing so lowers information rents. Mature firms pay smoothed dividends and have a fixed termination threshold. Dividend smoothing occurs because earnings surprises are used to adjust financial slack in line with profitability. When profitability only reflects the agent's private ability, a simple equity contract is optimal.
    Date: 2016–05
  9. By: Burgelman, Robert A. (Stanford University)
    Abstract: This paper examines Meg Whitman's tenure as HP's CEO from September 2011 till March 2016. It considers the external contextual forces shaping radical changes in the information technology industry as well as the internal contextual forces associated with the unresolved issues left by her predecessors that she had to face at the time of her appointment. It documents how she identified and assessed these external and internal strategic challenges, culminating in her initial conclusion that the company's consumer-oriented and enterprise-oriented businesses would perform "better together" but needed to be significantly strengthened through improving the key elements of the company's strategic leadership capability. The paper then documents how the continued rapid changes in the information technology industry reduced the inter-business complementarity while customer and competitive forces increased the intra-business complexity of the consumer-oriented and enterprise-oriented businesses. These changes potentially threatened to drive HP's adaptive capacity from anti-fragile to fragile and culminated in Whitman's radically new conclusion by October 2014 to "split HP in two:" HP Inc and Hewlett Packard Enterprise (HPE). The remainder of the paper focuses on how Whitman continues to develop the strategic leadership capability of HPE during 2015. It concludes with assessing in early 2016 her differential contributions as CEO to HP's integral process of becoming by creating the two new companies.
    Date: 2016–03
  10. By: Tripathi, Sabyasachi; Kumar, Shamika
    Abstract: The present paper tries to investigate the economic determinants of firm location choice in the metropolitan/large cities in India by considering firm those are using FDI (i.e., more than 10 percent of foreign investment) in 2012-13. For the analysis binary Logit model is used in this paper by taking firm level data from Capital Line database, Prowess database provided by CMIE (Centre for Monitoring Indian Economy) and Ace Equity plus database. The empirical estimations shows that total value of output, capital, and exports have a negative effect on firm location choice in the large cities. On the other hand, total value of working capital, operating profits, age of the firm, fixed assets, material cost, and sales of a firm have a positive effect on firm location choice in the large cities in India. However, the effect of percentage of FDI and total value of imports is found to be statistically insignificant on the firm‘s location choice. Finally, the paper discusses several policies in terms of location choice of firms in the large cities such as higher level of infrastructure investment, etc. for higher and sustainable industry lead urban development in India.
    Keywords: Location choice, firm location, Metropolitan cities, India
    JEL: R12 R3 R58
    Date: 2016–09–24
  11. By: Bird, Miriam (Center for Family Business, University of St. Gallen); Wennberg, Karl (Stockholm School of Economics, Institute of Analytical Sociology (IAS) and the Ratio Institute)
    Abstract: We integrate insights from the social embeddedness perspective with research on immigrant entrepreneurship to theorize on how family resources influence exit from entrepreneurship among previously unemployed immigrant entrepreneurs. Results from a cohort study of immigrant entrepreneurs in Sweden reveal that family resources are important for immigrants to integrate economically into a country. We find that having family members in geographical proximity increases immigrant entrepreneurs’ likelihood of remaining in entrepreneurship. Further, family financial capital enhances immigrant entrepreneurs’ likelihood of remaining in entrepreneurship as well as their likelihood of exiting to paid employment. Although often neglected in immigrant entrepreneurship studies, resources accruing from spousal relationships with natives influence entrepreneurs’ exit behavior. We discuss contributions for research on entrepreneurial exit, entrepreneurs’ social embeddedness, and immigrant entrepreneurship.
    Keywords: Immigrant entrepreneurship; entrepreneurial exit; family resources; social embeddedness; relational embeddedness
    JEL: J60 L26
    Date: 2016–09–26

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