nep-bec New Economics Papers
on Business Economics
Issue of 2016‒12‒04
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Women on Board and Performance of Family Firms: Evidence from India By Jayati Sarkar; Ekta Selarka
  2. The Impact of Formal Networking on the Performance of SMEs By Maurizio Cisi; Francesco Devicienti; Alessandro Manello; Davide Vannoni
  3. Rating Change and CEO Turnover By Annamaria Menichini; Francesca Toscano
  4. Contracting in a market with differential information By Rocha, M.; Greve, T.
  5. Employment Effects of Innovations over the Business Cycle: Firm-Level Evidence from European Countries By Bernhard Dachs; Martin Hud; Christian Köhler; Bettina Peters
  6. The growth of multinational firms in the Great Recession By Alviarez, Vanessa; Cravino, Javier; Levchenko, Andrei A.
  7. Equilibrium Default and the Unemployment Accelerator By Gaston Navarro; Julio Blanco
  8. Who is your perfect match? Educational norms, educational mismatch and firm profitability By Stephan Kampelmann; Benoît Mahy; François Rycx; Guillaume Vermeylen
  9. Granularity of the business cycle fluctuations: The Spanish case By Omar Blanco; Simone Alfarano
  10. Recruiting for Small Business Growth: Micro-level Evidence By Gidehag, Anton; Lodefalk, Magnus
  11. A Menu Cost Model with Price Experimentation By Chen Yeh; David Argente
  12. Does institutional quality matter for lending relationships? Evidence from Italy By Nifo, Annamaria; Ruberto, Sabrina; Vecchione, Gaetano

  1. By: Jayati Sarkar (Madras School of Economics); Ekta Selarka (Assistant Professor, Madras School of Economics)
    Abstract: This paper provides evidence on the effect of women directors on the performance of family firms with a case study of India. Existing literature on the subject has primarily focused on widely held firms, notably in the US. Given that ownership structure and governance environment of family firms are distinctly different from those of non-family firms, the evidence on the relationship between women on board and firm performance in the context of widely held firms may not apply in the context of family firms. India provides an ideal setting for analyzing this question as the presence of family firms is pervasive and since 2013 India has instituted gender quotas on corporate boards. Using a data-set of 10218 firm year observations over a ten year period from 2005 to 2014 which spans the pre-quota and post-quota years, we find robust evidence that women directors on corporate boards positively impact firm value and that this effect increases with the number of women directors on board. However, we find that the positive effect of gender diversity on firm performance weakens with the extent to which the family exerts control through occupying key management positions on the board. In addition, women directors affiliated to the family have no significant effect on firm value, whereas - independent women directors do. Our results with respect to profitability are somewhat different; while as in the case of market value, women directors positively impact profitability with the positive effect driven by independent women directors, the effect does not vary with the extent of family control. Taken together, our results suggest that though gender diversity on corporate boards may positively impact firm performance in family firms in general, the extent of family control can have a significant bearing on this relationship. The findings from this study could be instructive for emerging economies like India in promoting gender-based quotas on corporate boards.
    Keywords: Board of Directors, gender diversity, promoter control, ownership, regulationClassification-JEL: G32, G34, G38
    Date: 2015–10
  2. By: Maurizio Cisi (Department of Management, University of Torino, Italy); Francesco Devicienti (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Alessandro Manello (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Davide Vannoni (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: Using a large sample of Italian small and medium enterprises (SMEs), we investigate the effect of membership in a formal business network (“contratto di rete†) on firms’ economic performance. We find that network participation has a positive effect on value added and exports, but not on profitability. The advantages of networking are stronger in the case of: smaller SMEs, firms operating in traditional and in more turbulent markets, firms located in less developed areas and firms not already exploiting the weaker ties offered by industrial districts. Network characteristics, such as size, geographical dispersion and diversity, are also found to influence performance.
    Keywords: Formal Business Network, Small and Medium Firms, Economic Performance
    JEL: D22 L24 L25 M21
    Date: 2016–11
  3. By: Annamaria Menichini (CSEF, Università di Salerno); Francesca Toscano (Boston College)
    Abstract: We study the relationship between credit rating changes and CEO turnover beyond firm performance. Using an adverse selection model that explicitly incorporates rating change related turnover, our model predicts that a downgrade triggers turnover, more so the lower the managerial entrenchment, but that this relation is weaker when the report provided by the rating agency is more reliable. Our empirical results support these predictions. We show that downgrades explain forced turnover risk, with the new CEO chosen outside the firm that has received the negative credit rating change. In addition, we find that the relation between rating changes and management turnover is stronger when the degree of managerial entrenchment is low, for firms characterized by a high level of investment and for firms less exposed to rating fees. Finally, we show that this relation has weakened in the post-2007 crisis period, in coincidence with the increased reputational concerns of the rating agencies. The results are robust to endogeneity concerns.
    Keywords: Contracts, Ratings, CEO Turnover.
    JEL: D03 H21 L51
    Date: 2016–11–20
  4. By: Rocha, M.; Greve, T.
    Abstract: This Consider an oligopolistic industry where two firms have access to the same technology and compete in prices, but one firm has access to better information about the customers in the market. We assume that better information allows the better informed firm to attract specific customers. The better informed firm obtains a first customer contact advantage, whereas the uninformed firm can only offer a menu of prices without being able to pre-identify the types of customers. We show that better information does not lead to higher profit.
    JEL: D43 D82 L13
    Date: 2016–12–01
  5. By: Bernhard Dachs (Austrian Institute of Technology, Vienna); Martin Hud (ZEW Centre for European Economic Research, Mannheim); Christian Köhler (ZEW Centre for European Economic Research, Mannheim); Bettina Peters (ZEW, Mannheim, and CREA, University of Luxembourg)
    Abstract: A growing literature investigates how firms’ innovation input reacts to changes in the business cycle. However, so far there is no evidence whether there is cyclicality in the effects of innovation on firm performance as well. In this paper, we investigate the employment effects of innovations over the business cycle. Our analysis employs a large data set of manufacturing firms from 26 European countries over the period from 1998 to 2010. Using the structural model of Harrison et al. (2014), our empirical analysis reveals four important findings: First, the net effect of product innovation on employment growth is pro-cyclical. It turns out to be positive in all business cycle phases except for the recession. Second, product innovators are more resilient to recessions than non-product innovators. Even during recessions they are able to substitute demand losses from old products by demand gains of new products to a substantial degree. As a result their net employment losses are significantly lower in recessions than those of non-product innovators. Third, we only find resilience for SMEs but not for large firms. Fourth, process and organizational innovations displace labor primarily during upturn and downturn periods.
    Keywords: Innovation, employment, business cycle, resilience, Europe.
    JEL: O33 J23 C26 D2
    Date: 2016
  6. By: Alviarez, Vanessa; Cravino, Javier; Levchenko, Andrei A.
    Abstract: Using a large firm-level dataset, this paper studies multinational firms' performance during the Great Recession. Foreign multinationals grew faster than local firms outside of the crisis, but slower during the crisis. Industry and size differences between domestic and foreign-owned firms account for much of this slowdown. However, multinationals from different countries performed differently during the crisis. The paper then assesses the role of multinationals in the global recession using a quantitative model. Had multinationals' relative performance remained unchanged during the crisis, the median country's aggregate growth would have been 0.12% higher, with a range of -0.13 to 0.5% across countries.
    Keywords: great recession; multinational firms
    JEL: F23 F44
    Date: 2016–11
  7. By: Gaston Navarro (Federal Reserve Board); Julio Blanco (University of Michigan)
    Abstract: We provide evidence of a significant and persistent negative relation between a firm's workers and her probability to default. In contrast with most "macro-finance" models, this relation is robust to controlling for the several firm's variables, such as the firm's leverage and profitability. In particular, for a panel of most US publicly traded firms, we find that a 10% increase in a firm's workers is associated with a 3% decline in her probability to default. To account for this fact, we extend a standard search-friction labor-market model to incorporate firms default risk. This environment provides a micro-foundation where workers determine the firm's value, and consequently affecting her incentives to default. We argue that fluctuations in the value of a worker generate and significantly amplify business cycle fluctuations. In the context of our model, we find that fluctuations in the value of a worker explain more than 68% of credit spreads volatility, and almost 80% of default rate volatility.
    Date: 2016
  8. By: Stephan Kampelmann; Benoît Mahy; François Rycx; Guillaume Vermeylen
    Abstract: We provide first evidence regarding the direct effect of educational norms and educational mismatch on the bottom line of firms across work environments. To do so, we use rich Belgian linked employer-employee panel data, rely on the methodological approach pioneered by Hellerstein et al. (1999), and estimate dynamic panel data models at the firm level. Our findings show an ‘inverted L’ profitability profile: undereducation is associated with lower profits, whereas higher levels of normal and overeducation are correlated with positive economic rents of roughly the same magnitude. The size of these effects is amplified in firms experiencing economic uncertainty or operating in high-tech sectors.
    Keywords: Educational mismatch; productivity-wage gaps; linked panel data
    JEL: J21 J24
    Date: 2016–11–29
  9. By: Omar Blanco (Department of Economics, Universitat Jaume I, Castellón, Spain); Simone Alfarano (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: Following the approach proposed by Gabaix (2011), this paper aims to verify the existence of granularity in the Spanish business cycle fluctuations. A granular firm is characterized by the fact that its idiosyncratic shocks have a significant impact on GDP growth fluctuations. Despite the fact that granular firms constitute just a marginal fraction of the total number of firms, they account for a significant part of business cycle fluctuations. Our analysis shows that half of the GDP growth fluctuations of the Spanish economy can be linked to the idiosyncratic shocks of the largest 100 Spanish firms. Our work contributes to strengthening the empirical relevance of the granular hypothesis. The results show that the Spanish economy, as happens in the US economy, may be represented by a large number of small and medium enterprises whose individual evolution has no impact at the aggregate level, and a small number of large firms whose fluctuations contribute significantly to the variability of the Spanish business cycle.
    Keywords: granularity, granular economy, idiosyncratic shocks, aggregate fluctuations, power law behaviour
    JEL: E32 C16
    Date: 2016
  10. By: Gidehag, Anton (Örebro University School of Business); Lodefalk, Magnus (Örebro University School of Business)
    Abstract: We examine the link between new employees in leading positions and subsequent productivity in small- and medium-sized (SME) enterprises. Managers and professionals are likely to possess important tacit knowledge. They are also in a position to influence the employing firm. Exploiting rich and comprehensive panel data for Sweden in the 2001-2010 period and employing semi-parametric and quasi-experimental estimation techniques, we find that newly recruited leading personnel have a positive and statistically significant impact on the productivity of the hiring SME. Interestingly, our results suggest that professionals with experience from international firms and enterprise groups contribute the most to total factor productivity. Overall, the findings suggest the importance of mobility of leading personnel for productivity-enhancing knowledge spillovers to SMEs.
    Keywords: recruitment; knowledge spillovers; firm growth; productivity; SME
    JEL: D22 D24 D83 J24 J62
    Date: 2016–10–31
  11. By: Chen Yeh (University of Chicago); David Argente (University of Chicago)
    Abstract: We document a new set of salient facts on pricing moments over the life-cycle of products. First, entering products change prices twice as often as the average product. Second, the average size of these adjustments is 50 percent larger than the average price change. We argue that a menu cost model with price experimentation can rationalize these findings. The firm is uncertain about its demand elasticity under this setting, but can experiment with its price to endogenously affect its posterior beliefs. Firms face the trade-off between increasing the speed of learning through price experimentation and maximizing their static profits. This mechanism can endogenously generate large price changes, without the use of fat-tailed shocks, and can replicate the life-cycle patterns we document. We show that the cumulative output effect of an unanticipated monetary shock is 40 percent larger than in Golosov and Lucas (2007). On impact, selection is weakened as the experimentation motive alters the distribution of desired price changes and decreases the fraction of firms near the margin of adjustment. Furthermore, the notion of a product’s life-cycle generates an additional form of cross- sectional heterogeneity in the frequency of price adjustment. This causes the monetary shock to be further propagated.
    Date: 2016
  12. By: Nifo, Annamaria; Ruberto, Sabrina; Vecchione, Gaetano
    Abstract: Why the number of banking relationships per firm varies so much across space? Is it simply due to microeconomic features of firms localized in different regions or is there instead something connected to microeconomics and macroeconomic factors? Can the institutional endowment of a region affect the number of bank-firm relationships? We seek to answer these questions with reference to the Italian case, one particularly interesting because of the substantial institutional gap between Center-North and South and the high average number of banking relationships per firm. We investigate the role of institutional quality in determining firms’ choices and, consistent with previous studies, find that institutions are a basic determinant of the observed differentials in the number of firms’ banking relationships among different Italian provinces.
    Keywords: Firm-Bank relationship, Institutional quality, Italian manufacturing, SMEs.
    JEL: G20 G21 L60 O43 R11
    Date: 2016–11–20

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