nep-bec New Economics Papers
on Business Economics
Issue of 2016‒11‒06
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Diversity of Personnel Practices and Firm Performance By Martins, Pedro S.
  2. All in the family? CEO succession and firm organization By Renata Lemos; Daniela Scur
  3. Financial Industry Dynamics By Richard Lowery; Tim Landvoigt
  4. Technological Innovation and the Distribution of Employment Growth: a firm-level analysis By Flavio Calvino
  5. A Short Note on Discrimination and Favoritism in the Labor Market By Salamanca, Nicolas; Feld, Jan
  6. Family Ownership: Does it Matter for Funding and Success of Corporate Innovations? By Dorothea Schäfer; Andreas Stephan
  7. A short note on discrimination and favoritism in the labor market By Salamanca, Nicolas; Feld, Jan
  9. Firm Exports and Quality Standards: Evidence from French Food Industry By Disdier, Anne-Célia; Gaigné, Carl; Herghelegiu, Cristina
  10. Information asymmetry reduction in opaque contexts: Evidence from debt and outside equity financing in early stage firms By Mircea Epure; Martí Guasch
  11. Price Competition in the Presence of a Web Aggregator By Oksana Loginova; Andrea Mantovani
  12. Idiosyncratic Volatility and Earnings Quality: Evidence from United Kingdom By Ana Isabel Ramos Domingues; António de Melo da Costa Cerqueira; Elísio Fernando Moreira Brandão
  13. Endogenous Growth in Production Networks By Stanislao Gualdi; Antoine Mandel
  14. Distortions in the process of firm selection during the Great Recession: a comparison across European countries By Landini, Fabio
  15. Dynamic Contracting with Long-Term Consequences: Optimal CEO Compensation and Turnover By Suvi Vasama; ;
  16. Information acquisition, signaling and learning in duopoly By Jeitschko, Thomas D.; Liu, Ting; Wang, Tao
  17. The good, the bad and the ugly: Chinese imports, EU anti-dumping measures and firm performance By Liza Jabbour; Enrico Vanino; Zhigang Tao; Yan Zhang

  1. By: Martins, Pedro S. (Queen Mary, University of London)
    Abstract: Personnel economics tends be based on single-firm case studies. Here we examine the personnel practices of nearly 5,000 firms, over a period of 20 years, using detailed matched employer-employee panel data from Portugal. In the spirit of Baker et al. (1994a,b), we consider different dimensions of personnel management within each firm: worker turnover, the role of job levels and human capital as wage determinants, the dispersion of wages within job levels, the importance of tenure in terms of promotions and exits, and the scope for careers. We find a large degree of diversity in most of these practices across firms. Moreover, some personnel practices are shown to be robust predictors of higher levels of firm performance, even after controlling for time-invariant firm heterogeneity and other variables: low wage dispersion at low and intermediate job levels and a tight relationship between human capital variables and wages.
    Keywords: personnel economics, job levels, wages, big data
    JEL: M51 M52 J31
    Date: 2016–10
  2. By: Renata Lemos; Daniela Scur
    Abstract: Family firms are the most prevalent type of firm in the world and account for a large proportion of the economic activity and employment, especially in developing countries. We consider firms to be “family controlled” when the founding family owns over 25% of shares and the CEO is a family member. In this paper we investigate the relationship between family control and firm organization and performance in the manufacturing sector of primarily emerging economies. To do this we collect a new detailed dataset of the succession history in terms of ownership (who owns the shares) as well as control (who is the CEO) for over 800 firms in Latin America, Africa and Europe. We merge this with a unique dataset on firm performance and organizational structures, including on quality of managerial practices. We exploit exogenous variation in the composition of the family CEO’s children, and use it as an instrumental variable for family ownership and control. Our results suggest that family-owned-and-controlled firms are worse managed, with coefficients being over twice larger under 2SLS than OLS. In general the negative link seems to stem from the family vs non-family control rather than simply family or non-family ownership. Firms owned by families but with non-family CEOs do not suffer from the deficit in management quality.
    Date: 2016
  3. By: Richard Lowery (University of Texas, Austin); Tim Landvoigt (The University of Texas at Austin)
    Abstract: To explain the sources of heterogeneity and fragility in the financial sector, we develop a dynamic model of entry, exit, and firm quality in the market for issuance and trading of complex financial securities. Firm quality has two dimensions; security production expertise, which creates a positive externality for other firms, and trading expertise, which allows firms to obtain more favorable prices when trading with other firms. We find that increasing the quality of securities, which in the model increases the scope for investment in trading expertise, leads to markets that exhibit greater concentration, firm heterogeneity, fragility, and price dispersion.
    Date: 2016
  4. By: Flavio Calvino
    Abstract: This work studies the firm-level relationship between different types of innovative activities and employment growth rates. Improving on previous investigations on the topic, it combines a dynamic panel analysis of the effects of different types of product and process innovation on employment growth with an outlook on the whole conditional employment growth distribution. Results show that product innovation -- especially in terms of good new to the entire market -- has a positive effect on employment growth. This role is likely to be particularly relevant for both fast-growing and shrinking firms. Process innovation appears instead to have less clear-cut dynamics, consistently with existing evidence. Among different types of process innovation, the introduction of novel auxiliary processes appears to be more positively linked with employment growth.
    Keywords: Innovation, Employment growth, Dynamic panel methods, Quantile regression
    Date: 2016–10–26
  5. By: Salamanca, Nicolas (Melbourne Institute of Applied Economic and Social Research); Feld, Jan (Victoria University of Wellington)
    Abstract: We extend Becker's model of discrimination by allowing firms to have discriminatory and favoring preferences simultaneously. We draw the two-preference parallel for the marginal firm, illustrate the implications for wage differentials, and consider the implied long-run equilibrium. In the short-run, wage differentials depend on relative preferences. However, in the long-run, market forces drive out discriminatory but not favoring firms.
    Keywords: wage gap, nepotism, firm preferences, long-run equilibrium
    JEL: J70 J31
    Date: 2016–10
  6. By: Dorothea Schäfer (German Institute for Economic Research DIW Berlin); Andreas Stephan (Jönköping International Business School)
    Abstract: Using the Mannheim innovation panel, we investigate whether family firms have higher financial need and how this affects both innovation input and innovation outcomes such as firm or market novelties, or process innovation. Applying the CDM framework, we find that family firms are more likely to have a latent financial need for innovation, which means that they have innovation ideas which they have not implemented yet. We find that family firms have a significantly lower marginal innovation productivity in particular for innovations with radical character, i.e., market novelties. We conclude from this evidence that family firms have a comparative disadvantage in innovation projects that imply high risk and require high innovation capability.
    Keywords: Innovation, Capability, Funding gaps, Financing Restrictions, Family Firms, CDM
    JEL: D21 D22 G31 O30 O31 O32
    Date: 2016–10
  7. By: Salamanca, Nicolas; Feld, Jan
    Abstract: We extend Becker’s model of discrimination by allowing firms to have discriminatory and favoring preferences simultaneously. We draw the two-preference parallel for the marginal firm, illustrate the implications for wage differentials, and consider the implied long-run equilibrium. In the short-run, wage differentials depend on relative preferences. However, in the long-run, market forces drive out discriminatory but not favoring firms.
    Keywords: Wage gap, Nepotism, Firm preferences, Long-run equilibrium,
    Date: 2016
  8. By: Britz, Wolfgang; Linda, Arata
    Abstract: We present a dual cost function estimation for total farm cost in a programming model setup, with individual crop shares and expected yields as arguments, estimated simultaneously with risk behaviour. Using large unbalanced samples of specialized arable farms from Northern Italy, the French Grandes Culture Region and Cologne-Aachen in Germany that are observed for at least three consecutive years over the time period 1995-2008, we find a quite satisfactory fit for crop shares and total costs. We implement two model variants where zero crop observations are considered only in the second variant. Our results indicate that the specialized arable crop farmers in the samples use crop shares only to a limited degree as an instrument of risk management. We find moderate technical progress and large efficiency differences between farms.
    Keywords: Risk, dual cost function estimation, programming model, Production Economics, Research Methods/ Statistical Methods, Risk and Uncertainty,
  9. By: Disdier, Anne-Célia; Gaigné, Carl; Herghelegiu, Cristina
    Keywords: Agricultural Finance, Farm Management,
    Date: 2016
  10. By: Mircea Epure; Martí Guasch
    Abstract: This study analyzes the relationship between debt and outside equity investments in early stage firms. The existing evidence on this relationship is scarce and inconclusive, mostly due to the pervasive opaqueness of early stage firms. We argue that outside investors who face the severe information asymmetries that exist in entrepreneurial firms may use the level of debt as a signal. In addition, personal and business debt could signal different information to outside investors. We use the Kauffman Firm Survey and develop an empirical strategy based on a Heckman selection model and a propensity score matching analysis. Our results consistently show that debt, and particularly business debt, is positively related to outside equity investments, especially in times of economic distress. We posit that start-ups with higher levels of business debt can send more credible signals to capital markets, and identify cash holdings and the firm-bank relationship as possible information channels for outside investors.
    Keywords: financing; debt; equity; entrepreneurship; information asymmetry; capital structure.
    JEL: G32 M13 M40
    Date: 2015–11
  11. By: Oksana Loginova (Department of Economics, University of Missouri); Andrea Mantovani (Department of Economics, University of Bologna)
    Abstract: In this paper we examine the impact of a web aggregator on firms and consumers in a horizontally differentiated market. When a firm pays a fee to be listed on the aggregator's website, its location and price become observable to e-users (consumers who visit the website). We consider two settings, depending on the possibility for online firms to offer discounts to e-users. In equilibrium, not all firms will go online - some will choose to remain offline. Online firms attract more customers due to reduced mismatch costs, but face a tougher price competition. When the proportion of e-users is relatively low, price discrimination may hurt the firms. Therefore, less of them can afford to go online. The opposite holds when e-users predominate; price discrimination yields a higher number of online restaurants than uniform pricing. Finally, we evaluate the aggregator's optimal policy regarding the fee and whether to impose uniform pricing or to allow price discrimination. We discover that, unless the proportion of e-users is relatively low, the aggregator induces only a few restaurants to go online.
    Keywords: online reviews aggregators, price discrimination, competition
    JEL: C72 D43 D61 L11 L13 M31
    Date: 2015–03–12
  12. By: Ana Isabel Ramos Domingues (FEP-UP, School of Economics and Management, University of Porto); António de Melo da Costa Cerqueira (FEP-UP, School of Economics and Management, University of Porto); Elísio Fernando Moreira Brandão (FEP-UP, School of Economics and Management, University of Porto)
    Abstract: Recently, the idiosyncratic volatility has captured much of the attention of the financial literature, being the idiosyncratic volatility puzzle one of the most studied. Our study aims to verify if the financial reporting quality, proxied by earnings quality, an accrual-based measure, has an impact on idiosyncratic return volatility, using as sample the firms listed on London Stock Exchange, and comprising the period between 1988 and 2015. To account for the robustness of our results, we used several control variables, such as leverage, size, ratio book-to-market, firm age and firm performance. We conclude that earnings quality has a positive impact on idiosyncratic volatility, meaning that poorer information quality implies higher idiosyncratic volatility. Posteriorly, we extend our study to a trend analysis, asking if the earnings quality behaviour is related with the idiosyncratic volatility trends. We prove that idiosyncratic volatility does not have a constant upward trend, instead it behaves like ebbs and flows. We found that earnings quality has an impact, albeit small, in the overall trend of idiosyncratic volatility, and also explains its episodic behaviour.
    Keywords: Idiosyncratic Volatility, Earnings Quality, Abnormal Accruals, Time Series Analysis
    JEL: G11 G12 G14 G32
    Date: 2016–10
  13. By: Stanislao Gualdi (Ecole Centrale Supélec - Laboratoire MAS); Antoine Mandel (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We investigate the interplay between technological change and macroeconomic dynamics in an agent-based model of the formation of production networks. On the one hand, production networks form the structure that determines economic dynamics in the short run. On the other hand, their evolution reflects the long-term impacts of competition and innovation on the economy. We account for process innovation via increasing variety in the input mix and hence increasing connectivity in the network. In turn, product innovation induces a direct growth of the firm's productivity and the potential destruction of links. The interplay between both processes generate complex technological dynamics in which phases of process and product innovation successively dominate. The model reproduces a wealth of stylized facts about industrial dynamics and technological progress, in particular the persistence of heterogeneity among firms and Wright's law for the growth of productivity within a technological paradigm. We illustrate the potential of the model for the analysis of industrial policy via a preliminary set of policy experiments in which we investigate the impact on innovators' success of feed-in tariffs and of priority market access
    Keywords: Production network; Network formation; Scale-free networks; Firms demographics; distribution of firms' size; Zipf law; General equilibrium; monopolistic competition; disequilibrium
    JEL: D57 D85 L16
    Date: 2016–04
  14. By: Landini, Fabio (LUISS School of European Political Economy)
    Abstract: Recent evidence documents the weakness of market selection based on productivity differentials and the absence of cleansing during recessions. This paper argues that a possible explanation lies in the role of competitive rents, i.e., market advantages due to idiosyncrasies of the firm’s demand. Competitive rents allow firms to sustain profit independently of their internal efficiency, creating a selection advantage. During an economic recession, this advantage increases because competitive rents operate as a resilience factor. The process of firm selection can thus be distorted with relatively inefficient firms that manage to survive. These predictions are tested on a sample of French, Italian, and Spanish manufacturing firms, looking at the selection that took place during the Great Recession. Ceteris paribus, firms with competitive rents are less likely to exit than firms without competitive rents. This effect is stronger in countries more severely impacted by the downturn. The implications of these results for policy interventions to sustain aggregate productivity growth are discussed.
    Keywords: firm selection; profit; productivity; competitive rents; Great Recession
    JEL: D24 L11 L25
    Date: 2016–10–21
  15. By: Suvi Vasama; ;
    Abstract: We examine optimal managerial compensation and turnover policy in a principal-agent model in which the firm output is serially correlated over time. The model captures a learning-by-doing feature: higher effort by the manager increases the quality of the match between the firm and the manager in the future. The optimal incentive scheme entails an inefficiently high turnover rate in the early stages of the employment relationship. The optimal turnover probability depends on the past performance and the likelihood of turnover decreases gradually with superior performance. With good enough past performance, the turnover policy reaches efficiency; the manager is never retained if it is inefficient to do so. The manager’s compensation depends on the firm value and the optimal performance-compensation relation increases with past performance.
    JEL: C73 D82 D86
    Date: 2016–10
  16. By: Jeitschko, Thomas D.; Liu, Ting; Wang, Tao
    Abstract: We study firms' incentives to acquire private information in a setting where subsequent competition leads to firms' later signaling their private information to rivals. Due to signaling, equilibrium prices are distorted, and so while firms benefit from obtaining more precise private information, the value of information is reduced by the price distortion. Thus, compared with firms that do not attempt to manipulate rivals' beliefs, signaling firms acquire less precise information. An industry-wide trade-association acquiring information increases firm profit and may also increase consumer surplus, so allowing such collective action may be in the interest of regulatory authorities.
    Keywords: information acquisition,signaling,product differentiation
    JEL: D4 D8 L1
    Date: 2016
  17. By: Liza Jabbour; Enrico Vanino; Zhigang Tao; Yan Zhang
    Abstract: Despite growing international trade flows, the last decades have been characterized by an increasing recurrence to protectionist measures, especially through the adoption of anti-dumping (AD) measures. Dumping strategies might reduce international competition although the literature has frequently questioned to what extent AD measures have to do with unfair trade. Increasing concerns have been raised about the possible protectionist abuse of this trade defence instrument, especially in developed countries which may use AD actions to defend their mature industries from the price-competition of emerging economies. This paper provides a comprehensive analysis of the European Union (EU) AD measures against Chinese imports, looking at the contrasting effect on the performance of Chinese exporters, European producers and European importers. Our results suggest that EU AD measures successfully reduced the number of Chinese exporters although this results in an increase in the productivity of those remaining. The same EU AD measures have a mixed impact on the performance of European firms, bringing temporary benefits for domestic producers, but negatively affecting importers, with a perverse long-run effect of a reduced productivity gap between Chinese exporters and European firms.
    Keywords: anti-dumping, difference-in-differences, China, European Union, trade policy, lobbying
    Date: 2016

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