nep-bec New Economics Papers
on Business Economics
Issue of 2016‒11‒13
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  2. High Growth Young Firms: Contribution to Job, Output and Productivity Growth By John Haltiwanger; Ron S Jarmin; Robert Kulick; Javier Miranda*
  3. Information Asymmetry Reduction in Opaque Contexts: Evidence From Debt and Outside Equity Financing in Early Stage Firms By Mircea Epure; Martí Guasch
  4. Exports, Real Exchange Rates and External Exposures: Empirical Evidence from Turkish Manufacturing Firms By Nazli Toraganli; Cihan Yalcin
  5. Services Trade Restrictiveness, Mark-Ups and Competition By Dorothée Rouzet; Francesca Spinelli
  6. Are firm-level idiosyncratic shocks important for U.S. aggregate volatility? By Chen Yeh
  7. Reputation and foreclosure with vertical integration: Experimental evidence By Möllers, Claudia
  8. Dollarization and Enterprise's Behaviors: The Case of Cambodia By AIBA, Daiju
  9. A Generalized Model of Sales By Shelegia, Sandro; Wilson, Chris
  10. Does corporate social responsibility make over-educated workers more productive? By Romina R. Giuliano; Benoît Mahy; François Rycx; Guillaume Vermeylen
  11. The Business of Food Security: Profitability, Sustainability and Risk By Anonymous
  12. Music industry intermediation in the digital era and the resilience of the majors’ oligopoly: The role of transactional capabilities. By Rémy Guichardaz; Laurent Bach; Julien Penin

  1. By: Muhammad Fayyaz Sheikh (GC University); Syed Zulfiqar Ali Shah (Warwich Business School)
    Abstract: This study examines how compensation of chief executive officer (CEO) is influenced by firm performance and corporate governance in an emerging market, Pakistan. Using various panel regression models, including a dynamic panel model for a sample of non-financial firms listed at Karachi Stock Exchange (KSE) for period 2005 to 2012, we find that current and previous year accounting performance has positive influence on CEO compensation. However, stock market performance does not appear to have a positive influence on CEO compensation. We further find that firm size is an important factor contributing towards CEO compensation. Ownership concentration is positively correlated with CEO compensation, indicating some kind of collusion between management and largest shareholder to get personal benefits. CEO duality appears to have a negative relationship with CEO compensation. Board size and board independence have no convincing relationship with CEO compensation, indicating board ineffectiveness in reducing CEO entrenchment. The results of dynamic panel model suggest that CEO pay is highly persistent and takes time to adjust to long-run equilibrium. Our study has implications not only for managers but also for regulators and other stakeholders.
    Keywords: Corporate Governance, Dynamic Panel, Emerging Markets, Executive Compensation, Firm Performance, Fixed Effects
  2. By: John Haltiwanger; Ron S Jarmin; Robert Kulick; Javier Miranda*
    Abstract: Recent research shows that the job creating prowess of small firms in the U.S. is better attributed to startups and young firms that are small. But most startups and young firms either fail or don’t create jobs. A small proportion of young firms grow rapidly and they account for the long lasting contribution of startups to job growth. High growth firms are not well understood in terms of either theory or evidence. Although the evidence of their role in job creation is mounting, little is known about their life cycle dynamics, or their contribution to other key outcomes such as real output growth and productivity. In this paper, we enhance the Longitudinal Business Database with gross output (real revenue) measures. We find that the patterns for high output growth firms largely mimic those for high employment growth firms. High growth output firms are disproportionately young and make disproportionate contributions to output and productivity growth. The share of activity accounted for by high growth output and employment firms varies substantially across industries – in the post 2000 period the share of activity accounted for by high growth firms is significantly higher in the High Tech and Energy related industries. A firm in a small business intensive industry is less likely to be a high output growth firm but small business intensive industries don’t have significantly smaller shares of either employment or output activity accounted for by high growth firms.
    Date: 2016–01
  3. 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: 2016–11
  4. By: Nazli Toraganli; Cihan Yalcin
    Abstract: Turkish manufacturing firms are highly exposed to foreign currency (FX) denominated costs in the forms of liability dollarization and high imported input content in domestic production. This might limit the competitiveness effects of currency depreciation on exports. We attempt to uncover the relationship between the real exchange rates and exports of manufacturing firms in Turkey by taking account FX exposures and various firm characteristics. We use a large panel of manufacturing firms to carry out an empirical analysis for the period 2002-2010. We document that a real depreciation of the Turkish lira has a positive impact on export volumes and its impact is muted for manufacturing firms operating in sectors that use imported inputs intensively. That is, the cost of production channel seems to be effective in export performance of firms. In addition, we estimate that exports are less sensitive to real exchange rates for firms having moderate or low FX debt-to-export ratios (naturally hedged) and those are large and mature. Contrary to macro evidence, firm level findings suggest that a depreciation of Turkish lira seems to favor the external competitiveness of firms in general while for naturally hedged, large, mature, and high import intensity firms, the sensitivity is estimated to be smaller.
    Keywords: Exports, Real exchange rates, Currency mismatch, Firm characteristics
    JEL: F23 F31 G15 G31 G32
    Date: 2016
  5. By: Dorothée Rouzet; Francesca Spinelli
    Abstract: This report explores the relationship between services trade policies and mark-ups at the firm level, taken as a measure of competitive pressure. Restrictive regulations are found to enable firms to charge higher mark-ups in a majority of services sectors, suggesting ample scope for pro-competitive gains from trade liberalisation. Barriers to establishment consistently enable incumbent firms shielded from competition to raise their prices, while a lack of regulatory transparency and complex administrative procedures tend to add to all firms’ operating expenses. A “tax equivalent” of trade-restrictive regulations is then inferred from the abnormal price-cost margin of domestic firms in each service sector. These estimates indicate the magnitude of the welfare costs of regulatory trade restrictions across sectors and countries. The sectors with the highest average tax equivalents of STRI indices are broadcasting, construction, storage, and air and maritime transport, while those with the lowest averages are road transport, architecture and cargo-handling. There is however considerable variation between countries in all sectors.
    Keywords: competition, trade liberalisation, regulation, services trade restrictions
    JEL: D22 F13 F14 F61 L11 L8 L9
    Date: 2016–11–09
  6. By: Chen Yeh
    Abstract: This paper assesses the quantitative impact of firm-level idiosyncratic shocks on aggregate volatility in the U.S. economy and provides a microfoundation for the negative relationship between firm-level volatility and size. I argue that the role of firm-specific shocks through the granular channel plays a fairly limited role in the U.S. economy. Using a novel, comprehensive data set compiled from several sources of the U.S. Census Bureau, I find that the granular com-ponent accounts at most for 15.5% of the variation in aggregate sales growth which is about half found by previous studies. To bridge the gap between previous findings and mine, I show that my quantitative results require deviations from Gibrat’s law in which firm-level volatility and size are negatively related. I find that firm-level volatility declines at a substantially higher rate in size than previously found. Hence, the largest firms in the economy cannot be driving a sub-stantial fraction of macroeconomic volatility. I show that the explanatory power of granularity gets cut by at least half whenever the size-variance relationship, as estimated in the micro-level data, is taken into account. To uncover the economic mechanism behind this phenomenon, I construct an analytically tractable framework featuring random growth and a Kimball aggrega-tor. Under this setup, larger firms respond less to productivity shocks as the elasticity of demand is decreasing in size. Additionally, the model predicts a positive (negative) relationship between firm-level mark-ups (growth) and size. I confirm the predictions of the model by estimating size-varying price elasticities on unique product-level data from the Census of Manufactures (CM) and structurally estimating mark-ups using plant-level information from the Annual Survey of Manufactures (ASM).
    Date: 2016–01
  7. By: Möllers, Claudia
    Abstract: Building on the seminal paper of Ordover, Saloner and Salop (1990), I study the role of reputation building on foreclosure in laboratory experiments. In one-shot interactions, upstream firms can choose to build a reputation by revealing their price history to the current upstream competitor. In particular, integrated firms can establish a reputation to foreclose the input outcome that would otherwise not be tenable due to a commitment problem. I get three main results: First, withdrawal from the input market is three times more common with reputation building of the integrated firm. Second, the anticompetitive effects are much stronger when the integrated firm builds a reputation. Third, integrated firms choose to build a reputation significantly more often than non-integrated firms. Markets with reputation building of the integrated firm are ten times more often monopolized than without.
    Keywords: vertical restraints,commitment,reputation,experiments
    JEL: L42 D43 C90 D83 C72
    Date: 2016
  8. By: AIBA, Daiju
    Abstract: We investigated the Cambodian enterprises behaviors and its relation with dollarization using survey data. The data was collected in the survey carried out in 2014. We found that, in the case of Cambodia, that not only loans, but revenues, expenditures and price quotations are also highly dollarized. In addition, we found that the extents of dollarization vary across regions, firm size and industries. Furthermore, there was a currency mismatch between the currency compositions of revenues and expenditures. Especially, the mismatch is prominent in firms operating central area, firms of small sizes, or firms classified into the wholesale and retail trade sector. Importantly, we found that most of firms do not recognize the risk of exchange rate changes and do not have hedging strategies, although they cope with more than two currencies in their daily operation.
    Date: 2016–10
  9. By: Shelegia, Sandro; Wilson, Chris
    Abstract: To provide a more flexible workhorse model of temporary price reductions or `sales', this paper presents a substantially generalized `clearinghouse' sales framework. Our framework permits multiple dimensions of firm heterogeneity, and views firms as competing directly in utility rather than prices. The paper i) reproduces and extends many equilibria from the existing literature, ii) offers a range of new results on how firm heterogeneity affects market outcomes, iii) provides original insights into the number and type of firms that use sales, and iv) extends a `cleaning' procedure that is commonly used in empirical studies of sales and price dispersion.
    Keywords: Sales,Price Dispersion,Advertising,Clearinghouse,Heterogeneity
    JEL: L13 D43 M3
    Date: 2016
  10. By: Romina R. Giuliano; Benoît Mahy; François Rycx; Guillaume Vermeylen
    Abstract: This article provides first evidence on whether corporate social responsibility (CSR) influences the productivity effects of overeducation. By relying on detailed Belgian linked employer-employee panel data covering the period 1999-2010, our empirical results exhibit a positive and significant impact of over-education on firm productivity. Moreover, they suggest that the effect of over-education is positively enhanced when the firm implements a corporate social responsibility process, especially when it aims to have: i) a good match between job requirements and workers’ educational level, ii) a diverse workforce in terms of gender and age, and iii) a long-term relationship with its workers. Whenfocussing on required and over-education, the results suggest that CSR, besides representing an innovative and proactive approach for the firms’ stakeholders, may also be beneficial for the firm itself through a bigger increase in productivity for each additional year of required or over-education.
    Keywords: Educational mismatch; Productivity; CSR; Linked panel data
    JEL: J28 I20 J24 M50
    Date: 2016–11–08
  11. By: Anonymous
    Keywords: Agribusiness, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety,
    Date: 2015–08
  12. By: Rémy Guichardaz; Laurent Bach; Julien Penin
    Abstract: The digital revolution has significantly impacted the traditional business model of the music industry by lowering barriers to market entry. This change is usually depicted as a comeback to “the old-time”: artists would have more control and more autonomy in the business thanks to a new range of web intermediaries that challenges the big incumbent firms, the so-called majors (Universal, Sony and Warner). This paper argues that such diagnostic is incomplete and does not take into account the recent changes that the majors have successfully implemented on their business model. Based on a case study of the French major’s filial of Sony Music Entertainment the paper shows how and why majors are still playing competitive intermediary functions thanks to the development of transactional capabilities.
    Keywords: Research Productivity, Creativity, Collaboration.
    JEL: I23 O31 O32
    Date: 2016

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