nep-bec New Economics Papers
on Business Economics
Issue of 2016‒12‒11
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. When should a winner take all, or pay some? Innovation and imitation incentives in a dynamic duopoly By Billette de Villemeur, Etienne; Ruble, Richard; Versaevel, Bruno
  2. Do Female Executives Make a Difference? The Impact of Female Leadership on Gender Gaps and Firm Performance By Luca Flabbi; Mario Macis; Andrea Moro; Fabiano Schivardi
  3. Health insurance coverage and firm performance: Evidence using firm level data from Vietnam By Yamada, Hiroyuki; VU, Manh Tien
  4. Distorted Monopolistic Competition By Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Suedekum
  5. Through the Grapevine: Network Effects on the Design of Executive Compensation Contracts By Susanna Gallani
  6. Investment-less Growth: An Empirical Investigation By Germán Gutiérrez; Thomas Philippon
  7. Business concept as a relational message: supermarket vs independent grocery as competitors for sustainability By Mikkola, Minna
  8. Crowding out effect and sorting in competitive labor markets with motivated workers By Antoni Cunyat Cunyat
  9. Who Is Your Perfect Match? Educational Norms, Educational Mismatch and Firm Profitability By Kampelmann, Stephan; Mahy, Benoît; Rycx, Francois; Vermeylen, Guillaume
  10. Mergers and Acquisitions in the Indian Pharmaceutical Sector By Santosh K. Sahu; Nitika Agarwal

  1. By: Billette de Villemeur, Etienne; Ruble, Richard; Versaevel, Bruno
    Abstract: We develop a model of investment in duopoly with asymmetric costs of innovating and imitating and endogenous firm roles. Dynamic competition involves either attrition or preemption, the former being likelier with high demand growth and uncertainty. Industry value is maximized when firms neither stall nor hasten entry, and we show that social welfare has local maxima in both the attrition and preemption ranges. In all cases the socially optimal cost of imitation is positive. Attrition is optimal if consumer surplus rises sufficiently under duopoly, whereas with static business-stealing, preemption is optimal if discounting is important enough. Finally we discuss endogenous entry barriers and contracting, finding that firms are more likely to rely on secrecy and patents at low imitation costs and that simple licensing schemes are welfare improving.
    Keywords: Dynamic oligopoly; Knowledge spillover; Real options
    JEL: G31 L13 O33
    Date: 2016–12
  2. By: Luca Flabbi; Mario Macis; Andrea Moro; Fabiano Schivardi
    Abstract: We investigate the effects of female executives on gender-specific wage distributions and firm performance. We find that female leadership has a positive impact at the top of the female wage distribution and a negative impact at the bottom. Moreover, the impact of female leadership on firm performance increases with the share of female workers. Our empirical strategy accounts for the endogeneity induced by the non-random assignment of executives to firms by including in the regressions firm fixed effects, by generating controls from a two-way fixed effects regression, and by building instruments based on regional trends. The empirical findings are consistent with a model of statistical discrimination where female executives are better equipped at interpreting signals of productivity from female workers. The evidence suggests substantial costs of under-representation of women at the top of the corporate hierarchy
    JEL: J7 M12 M5
    Date: 2016–12
  3. By: Yamada, Hiroyuki; VU, Manh Tien
    Abstract: In literature, there is limited direct evidence regarding the effect of health insurance coverage on firm performance and worker productivity. In this paper, we study the impacts of health insurance on medium and large-scale domestic private firms’ performance and productivity in Vietnam, using a large firm level census dataset. We deploy propensity-score matching methods, and find statistically positive health insurance effects on both aggregate profit and profit per worker for both complying and non-complying medium and large-scale firms. Given the full sample results, we recommend an improvement in government monitoring as one of the important policy options to induce medium and large-scale firms to contribute to health insurance premiums for their employees.
    Keywords: Health insurance, Medium and large-scale firms, Propensity-score matching, Vietnam, Health insurance, Medium and large-scale firms, Propensity-score matching, Vietnam, D22, I13, I15, I18, O25
  4. By: Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Suedekum
    Abstract: We characterize the equilibrium and optimal resource allocations in a general equilibrium model of monopolistic competition with multiple asymmetric sectors and heterogeneous firms. We first derive general results for additively separable preferences and general productivity distributions, and then analyze specific examples that allow for closed-form solutions and a simple quantification procedure. Using data for France and the United Kingdom, we find that the aggregate welfare distortion -- due to inefficient labour allocation and firm entry between sectors and inefficient selection and output within sectors -- is equivalent to the contribution of 6-8% of the total labour input.
    Keywords: monopolistic competition, welfare distortion, intersectoral distortions, intrasectoral distortions
    JEL: D43 D50 L13
    Date: 2016–12
  5. By: Susanna Gallani (Harvard Business School, Accounting and Management Unit)
    Abstract: Effective design of executive compensation contracts involves choosing and weighting performance measures, as well as defining the mix between fixed and incentive-based pay components, with a view to fostering talent retention and goal congruence. The variability in compensation design observed in practice is significantly lower than it would be predicted by contracting theory. This is likely due to indirect constraining pressures, which cannot be completely explained by industry affiliation or peer group membership. I posit that network connections involving corporate boards operate as a conduit for these pressures. Using information disclosed in proxy statements of publicly traded companies, and a vectorial approach to measure compensation similarity, I predict and find that firms that are connected by board interlocks, hiring the same compensation consulting firm, or sharing a blockholder, exhibit a higher degree of similarity in the design of executive compensation contracts than what would be predicted by similarities in organizational characteristics. The relative prominence of the connectors within the respective networks moderates the network effects on the degree of compensation similarity. Finally, I show that the market responds positively to compensation similarity, although it is associated with excess CEO compensation.
    Keywords: Compensation design, Board interlocks, Compensation consultants, Blockholders, Network centrality.
    Date: 2015–08
  6. By: Germán Gutiérrez; Thomas Philippon
    Abstract: We analyze private fixed investment in the U.S. over the past 30 years. We show that investment is weak relative to measures of profitability and valuation – particularly Tobin’s Q, and that this weakness starts in the early 2000’s. There are two broad categories of explanations: theories that predict low investment because of low Q, and theories that predict low investment despite high Q. We argue that the data does not support the first category, and we focus on the second one. We use industry-level and firm-level data to test whether under-investment relative to Q is driven by (i) financial frictions, (ii) measurement error (due to the rise of intangibles, globalization, etc), (iii) decreased competition (due to technology or regulation), or (iv) tightened governance and/or increased short-termism. We do not find support for theories based on risk premia, financial constraints, or safe asset scarcity, and only weak support for regulatory constraints. Globalization and intangibles explain some of the trends at the industry level, but their explanatory power is quantitatively limited. On the other hand, we find fairly strong support for the competition and short-termism/governance hypotheses. Industries with less entry and more concentration invest less, even after controlling for current market conditions. Within each industry-year, the investment gap is driven by firms that are owned by quasi-indexers and located in industries with less entry/more concentration. These firms spend a disproportionate amount of free cash flows buying back their shares.
    JEL: E22 G3
    Date: 2016–12
  7. By: Mikkola, Minna
    Abstract: The paper deals with a new competition situation between a large consumer co-operative and a very small local food shop as its rival. While both businesses are selling food, their business concepts look very different. These concepts are analysed as ideology, identity and shopkeeper/retailer speech. The results show the deep cutting change in trade introduced by the small food shop as concern for sustainable food system and social relations as resources for new community building, suggesting conditional possibilities for further business growth. The large retailer has problems in answering the challenge as its concept seems to exclude concern for food system, the trade includes economic interests and rather negligible social relations. In principle, the small contester could succeed in expanding its business model through staying small and proliferating, supporting small farms’ economic viability. The large retailer could succeed by investing in launching more local and organic produce and thereby developing both primary production and processing capacity in a lagging rural region. The study shows the importance of the business concept as a condition and limitation for further growth.
    Keywords: Agribusiness,
    Date: 2015–05
  8. By: Antoni Cunyat Cunyat (Universitat de València)
    Abstract: We consider a competitive labor market with moral hazard and adverse selection where firms employ teams of two workers. There exist two types of workers: selfish workers and motivated workers. Selfish workers only respond to monetary incentives. Motivated workers not only respond to monetary incentives but their behavior is also driven by intrinsic motivation. However, if a firm chooses an output-based reward system, their intrinsic motivation is undermined. We obtain that self-selection into contracts separating workers based on their motivation is feasible, provided that the crowding out e¿ect is powerful enough. More importantly, all firms have expected positive profits. Our model produces in this case heterogeneity at the firm level.
    Keywords: intrinsic motivation, adverse selection, competition
    JEL: J33 D82 D86
    Date: 2016–11
  9. By: Kampelmann, Stephan (Free University of Brussels); Mahy, Benoît (University of Mons); Rycx, Francois (Free University of Brussels); Vermeylen, Guillaume (University of Mons)
    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
  10. By: Santosh K. Sahu (Madras School of Economics); Nitika Agarwal (Madras School of Economics)
    Abstract: Mergers and acquisitions (M and A) are common strategies of firms to increase its performance. Although, the motives of M and A are different however, the determinants are discreet. This study tries to determine the factors affecting M and A activities in the Indian pharmaceutical sector. The empirical findings suggest; export intensity, import intensity, firm size and research and development intensity as the major determinants of M and A in the Indian pharmaceutical sector. In the context of acquisition, there is a riskiness associated with any business strategy, for to which a firm may choose to finance the deal either via cash, stock or assets. This study further looks at the firm’s decision on the types of acquisitions and arrives at the determinants of such decisions. The factors such as capital intensity was found more important when acquisition by share was undertaken compared to others. The success of the M and A is observed by considering the financial performance of the firm measured in terms of profit margin at firm level. Using propensity score matching technique, this study concludes that M and A have positive effect on the profit margin in the post M and A scenario.
    Keywords: Mergers, Acquisitions, Indian Pharmaceutical Sector Classification-JEL: G34, L65, C13
    Date: 2015–09

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