nep-bec New Economics Papers
on Business Economics
Issue of 2016‒10‒09
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Interfirm Learning Economies in Drilling and Environmental Safety By Michael Redlinger; Ian Lange; Peter Maniloff
  2. Business Owners, Employees and Firm Performance By Maliranta, Mika; Nurmi, Satu
  3. What kind of entrepreneurs start high productivity businesses? By Maliranta, Mika; Nurmi, Satu
  4. Protecting innovation through patents and trade secrets: Determinants and performance impacts for firms with a single innovation By Crass, Dirk; Garcia Valero, Francisco; Pitton, Francesco; Rammer, Christian
  5. Product Standards and Margins of Trade: Firm-Level Evidence Product Standards and Margins of Trade: Firm-Level Evidence By Lionel Fontagné; Gianluca Orefice; Roberta Piermartini; Nadia Rocha
  6. Within and Between Firm Trends in Job Polarization: Role of Globalization and Technology By Pekkala Kerr, Sari; Maczulskij, Terhi; Maliranta, Mika
  7. Do Financial Frictions Explain Chinese Firms’ Saving and Misallocation By Xu Tian; Dan Lu; Yan Bai
  8. Market power in the portfolio: Product market competition and mutual fund performance By Jaspersen, Stefan
  9. Economic Impact of Political Protests (Strikes) on Manufacturing Firms: Evidence from Bangladesh By Shonchoy, Abu; Tsubota, Kenmei
  10. A Portrait of Firms that Invest in R&D By Lucia Foster; Cheryl Grim; Nikolas Zolas
  11. Right on Schedule: CEO Option Grants and Opportunism By Daines, Robert M.; McQueen, Grant R.; Schonlau, Robert J.
  12. Multiproduct-Firm Oligopoly: An Aggregative Games Approach By Nocke, Volker; Schutz, Nicolas
  13. Financial Constraint and Productivity: Evidence from Canadian SMEs By Shutao Cao; Danny Leung
  14. Volatility in the Small and in the Large: The Lack of Diversification in International Trade By Kramarz, Francis; Martin, Julien; Mejean, Isabelle
  15. Corporate Financial Policy and the Value of Cash under Uncertainty By Christopher F. Baum; Atreya Chakraborty; Boyan Liu

  1. By: Michael Redlinger (Department of Revenue, State of Alaska); Ian Lange (Division of Economics and Business, Colorado School of Mines); Peter Maniloff (Division of Economics and Business, Colorado School of Mines)
    Abstract: This paper examines interfirm learning economies in improving productivity and environmental safety in Bakken oil drilling. We distinguish between firms accruing match-specific relationship capital, idiosyncratic match quality, and learning about match quality. We find some evidence that firms do accrue relationship-specific capital which improves firm productivity. However, we do not find evidence that firm or interfirm learning leads to increased environmental safety. We do find evidence that idiosyncratic match quality leads to both higher productivity and improved environmental safety.
    Keywords: Learning, Shale Oil, Drilling, Environmental Accidents
    JEL: L51 L71 Q35 Q53
    Date: 2016–10
  2. By: Maliranta, Mika; Nurmi, Satu
    Abstract: Abstract The novel Finnish Longitudinal OWNer-Employer-Employee (FLOWN) database was used to analyze how the characteristics of owners and employees relate to firm performance as determined by labor productivity, survival and employment growth. Focusing on the role of the owner’s formal education and previous experience as an employee, the results show that previous experience in a high-productivity firm strongly predicts high productivity and probability of survival for the entrepreneur’s new firm. This can be interpreted as evidence of knowledge spillover through labor mobility. Strikingly, firms established in times of intensive excess job reallocation were found to exhibit superior productivity performance in the later phases of their life cycles.
    Keywords: Entrepreneurship, ownership, firm performance, human capital, diffusion of knowledge
    JEL: L25 L26 J24 J62 O33
    Date: 2016–10–06
  3. By: Maliranta, Mika; Nurmi, Satu
    Abstract: The Finnish economy is suffering from a prolonged hollow in productivity. For a solid bounce, arguably Finland would need new high productivity firms. To analyze where entrepreneurs of such firms come from and what they are like, we have constructed a novel Finnish Longitudinal OWNer-Employer-Employee (FLOWN) database. Here we focus on limited liability companies with one dominant owner who works in her own firm and who has hired at least one additional employee. We find that these entrepreneurs typically have previous experience as an employee in another high productivity firm and, moreover, this is strongly positively associated with her current firm’s higher productivity and survival probability. In addition, a strong link between the productivity performance and the owner’s formal university education in a technical field is established. These findings are robust to controlling for a number of entrepreneur and employee attributes. Finally, we find that firms that were founded in times of intensive job reallocation currently had superior productivity performance.
    Date: 2016–10–06
  4. By: Crass, Dirk; Garcia Valero, Francisco; Pitton, Francesco; Rammer, Christian
    Abstract: This paper tests a number of hypotheses on the use and effectiveness of patents and trade secrets designed to protect innovation. While previous studies have often considered patents and trade secrets as substitutes for one another, we investigate the complementary role of the two protection methods. We identify protection strategies for single innovation firms and hence overcome the assignment problem of existing empirical studies, i.e. whether firms using both protection methods do so for the same innovation or for different innovations. Employing firm panel data from Germany, we find fairly few differences between the determinants for choosing secrecy and patenting. Single innovators that combine both strategies, 39% of the group, tend to aim at a higher level of innovation and act in a more uncertain technological environment. Firms combining both protection methods yield significantly higher sales with new-to-market innovations. Using only secrecy has slightly stronger positive impacts on firm profitability.
    Keywords: Patents,Trade Secrets,Performance Impacts,Single Innovation
    JEL: O31 O32 O34
    Date: 2016
  5. By: Lionel Fontagné (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Gianluca Orefice (Centre d'Etudes Prospectives et d'Informations Internationales); Roberta Piermartini (WTO); Nadia Rocha (WTO)
    Abstract: This paper considers the heterogenous trade effects of restrictive Sanitary and Phyto-Sanitary (SPS) measures on exporters of different sizes, and the channels via which aggregate exports fall: firm participation, export values and pricing strategies. We do so by matching a detailed panel of French firm exports to a new database of SPS regulatory measures that have been raised as of concern in the dedicated committees of the WTO. By using specific trade concerns to capture the restrictiveness of product standards, we focus only on standards that are perceived as trade barriers. We analyze their effects on three trade-related outcomes: (i) the probability to export and to exit the export market (the firm-product extensive margin), (ii) the value exported (the firm-product intensive margin), and (iii) export prices. We find that SPS concerns discourage the presence of exporters in SPS-imposing foreign markets. We also find a negative effect of SPS imposition on the intensive margins of trade. These negative effects SPS are attenuated in larger firms.
    Keywords: International trade,firm heterogeneity,multi-product exporters,non-tariff barriers *
    Date: 2015–09
  6. By: Pekkala Kerr, Sari; Maczulskij, Terhi; Maliranta, Mika
    Abstract: This paper analyzes occupational polarization within and across firms using comprehensive matched employer-employee panel data from Finland. The occupational distribution in Finland has been polarizing over the last few decades, with mid-level production and clerical jobs eroding while low-skill service occupations and high-skill specialist occupations gain share. We find that the phenomenon is taking place within existing firms, as well as due to firm entry and exit. Service jobs are increasing through the entry-exit dynamics, but also via establishment level restructuring among continuing firms. Routine jobs, including mid-level plant operating jobs, are being destroyed both among continuing firms and at the entry-exit margin. The share of high-level occupations increases largely within continuing firms. Within the continuing firms the job polarization appears to be related to the trade of goods and services, as well as the outsourcing of tasks. Firms with high R&D expenditures and ICT use are more prone to lay off process and production workers.
    Keywords: Job polarization, offshoring, international trade, firm, establishment, technology, R&D, ICT
    JEL: J24 J31 O33
    Date: 2016–10–03
  7. By: Xu Tian (University of Rochester); Dan Lu (the University of Rochester); Yan Bai (University of Rochester)
    Abstract: This paper uses Chinese firm-level data to quantify financial frictions in China and asks to what extent they can explain firms’ saving and capital misallocation. We first document features of the data, in terms of firm dynamics and financing. Relatively smaller firms have lower leverage, face higher interest rates and operate with a higher marginal product of capital. We then develop a heterogeneous-firm model with two types of financial frictions, default risk and a fixed cost of issuing loans. We estimate the model using evidence on the firm size distribution and financing patterns and find that financial frictions can explain aggregate firm saving, the co-movement between saving and investment across firms, and around 60 percent of the dispersion in the marginal product of capital (MPK). The endogenous financial frictions, however, generate a negative MPK-size relationship, which has important implications for total factor productivity losses.
    Date: 2016
  8. By: Jaspersen, Stefan
    Abstract: I provide evidence that fund managers who overweight firms with the most differentiated products ('monopolies') exhibit a superior risk-adjusted performance. This is consistent with information advantages due to a better understanding of qualitative information on a firm's competitive environment. I find that funds with above median monopoly bets outperform by up to 92 basis points annually and trade more successfully in both their monopoly and nonmonopoly sub-portfolios. My identification strategy includes exogenous shocks to information quality using the Sarbanes-Oxley Act and to a firm's product market environment using the 9/11 terrorist attacks. I document that managers who place larger monopoly bets are less likely to invest into rival firms at the same time, have a longer investment horizon, and hold more illiquid and high quality stocks.
    Keywords: Mutual fund performance,Information production,Fund manager skill,Investment behavior,Product market competition
    JEL: G11 G12 G14 G23 L11
    Date: 2016
  9. By: Shonchoy, Abu; Tsubota, Kenmei
    Abstract: Political protests in the form of strikes, locally known as hartals, remain quite common in the Indian subcontinent countries. Such a form of protests is associated with a mass movement, intended to cause a total shutdown of economic activities and often results in coercion, violence, and damage to public and private properties. Utilizing the World Bank enterprise survey data of 2007 and 2013 of Bangladesh, this study examines the impacts of hartal on manufacturing firms. We find that political protests significantly increase the cost for firms. Using flexible cost function based on factor analysis we see the factor-neutral effect of strikes is positive and statistically significant, showing evidence of reduction of firm productivity due to hartals. However, we did not find any evidence for systematic factor re-optimization by firms -- in response to political strikes – suggesting that firms do not reallocate factor shares to tackle uncertain and irregular shocks like hartal.
    Keywords: Political strikes, translog cost function, factor biased technological change
    JEL: D24 D74 O14
    Date: 2016–09–29
  10. By: Lucia Foster; Cheryl Grim; Nikolas Zolas
    Abstract: We focus on the evolution and behavior of firms that invest in research and development (R&D). We build upon the cross-sectional analysis in Foster and Grim (2010) that identified the characteristics of top R&D spending firms and follow up by charting the behavior of these firms over time. Our focus is dynamic in nature as we merge micro-level cross-sectional data from the Survey of Industrial Research and Development (SIRD) and the Business Research & Development and Innovation Survey (BRDIS) with the Longitudinal Business Database (LBD). The result is a panel firm-level data set from 1992 to 2011 that tracks firms’ performances as they enter and exit the R&D surveys. Using R&D expenditures to proxy R&D performance, we find the top R&D performing firms in the U.S. across all years to be large, old, multinational enterprises. However, we also find that the composition of R&D performing firms is gradually shifting more towards smaller domestic firms with expenditures being less sensitive to scale effects. We find a high degree of persistence for these firms over time. We chart the history of R&D performing firms and compare them to all firms in the economy and find substantial differences in terms of age, size, firm structure and international activity; these differences persist when looking at future firm outcomes.
    Date: 2016–01
  11. By: Daines, Robert M. (Stanford University); McQueen, Grant R. (Brigham Young University); Schonlau, Robert J. (Brigham Young University)
    Abstract: In the wake of the backdating scandal, many firms began awarding options at scheduled times each year. Scheduling option grants eliminates backdating, but creates other agency problems. CEOs that know the dates of upcoming scheduled option grants have an incentive to temporarily depress stock prices before the grant dates to obtain options with lower strike prices. We provide evidence that in recent years some CEOs manipulate stock prices to increase option compensation. We document negative abnormal returns before scheduled option grants and positive abnormal returns after the grants. These returns are explained by measures of a CEO's incentive and ability to influence stock price. We document several mechanisms CEOs use to lower the strike price, including changing the substance and timing of the firm's disclosures.
    JEL: D82 G30 J33 K22 M41 M52
    Date: 2015–04
  12. By: Nocke, Volker; Schutz, Nicolas
    Abstract: We develop an aggregative games approach to study oligopolistic price competition with multiproduct firms. We introduce a new class of demand systems, derived from discrete/continuous choice, and nesting CES and logit demand systems. The associated pricing game with multiproduct firms is aggregative and a firm's optimal price vector can be summarized by a uni-dimensional sufficient statistic, the iota-markup. We prove existence of equilibrium using a nested fixed-point argument, and provide conditions for equilibrium uniqueness. In equilibrium, firms may choose not to offer some products. We analyze the pricing distortions and provide monotone comparative statics. Under CES and logit demands, another aggregation property obtains: All relevant information for determining a firm's performance and competitive impact is contained in that firm's uni-dimensional type. Finally, we re-visit classic questions in static and dynamic merger analysis, and study the impact of a trade liberalization on the inter- and intra-firm size distributions, productivity and welfare.
    Keywords: Aggregative Game; Discrete/Continuous Choice; Firm Scope; Horizontal Merger; Multiproduct Firms; Oligopoly Pricing; trade liberalization
    JEL: D43 F15 L13
    Date: 2016–09
  13. By: Shutao Cao; Danny Leung
    Abstract: The degree to which financial constraint is binding is often not directly observable in commonly used business data sets (e.g., Compustat). In this paper, we measure and estimate the likelihood of a firm being constrained by external financing using a data set of small- and medium-sized Canadian firms. Our measure separates the need for financing from the degree of constraint, conditional on the need for financing. We find that firm size, the current-debt-to-asset ratio and cash flow are robust indicators that can be used as a proxy for financial constraint. The total debt-to-asset ratio is not, however, a statistically significant indicator of financial constraint. In addition, firms with higher cash flow are less likely to need external financing and to be constrained if they do need it. We then estimate firm-level total factor productivity by taking into account the measured likelihood of binding financial constraint. Estimates of the coefficients for labour and capital in the structural estimation of the production function can be downward-biased if financial constraint is omitted, because production inputs are negatively correlated with the likelihood of being constrained by external financing. This in turn leads to an upward bias of total factor productivity estimates, which is about 4 per cent according to our estimation.
    Keywords: Firm dynamics, Productivity
    JEL: D24 G32 L25
    Date: 2016
  14. By: Kramarz, Francis; Martin, Julien; Mejean, Isabelle
    Abstract: We study how different sources of fluctuations interact with the micro-structure of trade networks to shape the volatility of exports at the firm-level and in the aggregate. Four shocks affect transactions -- a macroeconomic shock and three individual shocks hitting the exporters, their foreign partners, and their matches. We structurally estimate these shocks using data on the transactions connecting French exporters to their individual European buyers. Individual shocks explain half of aggregate fluctuations and the entirety of individual fluctuations. The volatility of sales across firms and countries are well-explained by the cross-sectional heterogeneity in the diversification of their trade networks.
    Keywords: Aggregate fluctuations; Firm-level volatility; firm-to-firm trade
    JEL: D22 E32 F14
    Date: 2016–09
  15. By: Christopher F. Baum (Boston College; DIW Berlin); Atreya Chakraborty (University of Massachusetts-Boston); Boyan Liu (Beihang University)
    Abstract: In this paper we provide evidence on how firm-specific and macroeconomic uncertainty affects shareholders' valuation of a firm's cash holdings. This extends previous work on this issue by highlighting the importance of the source of uncertainty. Our findings indicate that increases in firm-specific risk generally increase the value of cash while increases in macroeconomic risk generally decrease the value of cash. These findings are robust to alternative definitions of the unexpected change in cash. We extend our analysis to financially constrained and unconstrained firms.
    Keywords: cash holdings, marginal value of cash, macro uncertainty, idiosyncratic uncertainty, financial constraints
    JEL: G32 G34 D81
    Date: 2016–07–20

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