nep-bec New Economics Papers
on Business Economics
Issue of 2017‒03‒05
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Characteristics and Performance of Family Firms: Exploiting information on ownership, governance and kinship using total population data By Andersson, Fredrik; Johansson, Dan; Karlsson, Johan; Lodefalk, Magnus; Poldahl, Andreas
  2. Firm Entry and Exit and Aggregate Growth By Asturias, Jose; Hur, Sewon; Kehoe, Timothy J.; Ruhl, Kim J.
  3. Innovation and Firm Growth over the Business Cycle By Andrin Spescha; Martin Wörter
  4. Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown By Ryan Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
  5. Trade and the Size Distribution of Firms: Evidence from the German Empire. By Biermann, Marcus
  6. M&A negotiations with limited information: how do opaque firms buy and get bought? By Pierpaolo Battigalli; Carlo Chiarella; Stefano Gatti; Tommaso Orlando
  7. A Quantitative Model of Bubble-Driven Business Cycles By Larin, Benjamin
  8. Organizational Design with Portable Skills. By Picariello, Luca
  9. Taxation, infrastructure, and firm performance in developing countries By Lisa CHAUVET; Marin FERRY
  10. The long-term impact of trade with firm heterogeneity By Guzman Ourens
  11. Incentive Contracting Under Ambiguity Aversion By Qi Liu; Lei Lu; Bo Sun
  12. From Labor to Cash Flow? The Abolition of Immigration Restrictions and the Performance of Swiss Firms By Jan Ruffner; Michael Siegenthaler

  1. By: Andersson, Fredrik (Statistics Sweden); Johansson, Dan (Örebro University School of Business); Karlsson, Johan (Örebro University School of Business); Lodefalk, Magnus (Örebro University School of Business); Poldahl, Andreas (Statistics Sweden)
    Abstract: Family firms are often considered characteristically different from non-family firms, and the economic implications of these differences have generated significant academic debate. However, our understanding of family firms suffers from an inability to identify them in total population data, as this requires information on owners, their kinship and involvement in firm governance, which is rarely available. We present a method for identifying domiciled family firms using register data that offers greater accuracy than previous methods. We then apply it to data from Statistics Sweden concerning firm ownership, governance and kinship over the years 2004-2010. Next, we use Swedish data to estimate these firms’ economic contribution to total employment and gross domestic product (GDP) and compare them to private domiciled non-family firms in terms of their characteristics and economic performance. We find that the family firm is the prevalent organizational form, contributing to over one-third of all employment and GDP. Family firms are common across industries and sizes, ranging from the smallest producers to the largest multinational firms. However, their characteristics differ across sizes and legal forms, thereby indicating that the seemingly contradictory findings among previous studies on family firms may be due to unobserved heterogeneity. We furthermore find that they are smaller than private non-family firms in employment and sales and carry higher solidity, although they are more profitable. These differences diminish with firm size, however. We conclude that the term ‘family firm’ contains great diversity and call for increased attention to their heterogeneity.
    Keywords: entrepreneur; family firms; employment; GDP; register data
    JEL: D22 G32 J21
    Date: 2017–02–21
  2. By: Asturias, Jose (Georgetown University Qatar); Hur, Sewon (University of Pittsburgh); Kehoe, Timothy J. (Federal Reserve Bank of Minneapolis); Ruhl, Kim J. (Pennsylvania State University)
    Abstract: Using data from Chile and Korea, we find that a larger fraction of aggregate productivity growth is due to firm entry and exit during fast-growth episodes compared to slow-growth episodes. Studies of other countries confirm this empirical relationship. We develop a model of endogenous firm entry and exit based on Hopenhayn (1992). Firms enter with efficiencies drawn from a distribution whose mean grows over time. After entering, a firm’s efficiency grows with age. In the calibrated model, reducing entry costs or barriers to technology adoption generates the pattern we document in the data. Firm turnover is crucial for rapid productivity growth.
    Keywords: Entry; Exit; Productivity; Entry barriers; Barriers to technology adoption
    JEL: E22 O10 O38 O47
    Date: 2017–02–21
  3. By: Andrin Spescha (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Martin Wörter (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper investigates how the macroeconomic business cycle impacts the empirical relation between firms’ innovations and their sales growth rates. Based on firm-level panel data over the time period 1995-2014, the paper finds no visible sales growth differentials between firms in booming economic environments. In the economically difficult times of recessions, by contrast, innovative firms show significantly higher sales growth rates than non-innovative firms. This finding is in line with Schumpeter’s (1939) business cycle theory, where recessions play an important role in the adaptation of the economy towards innovative products and processes. Moreover, the paper shows that small innovative firms, profiting from their higher organizational flexibility and stronger entrepreneurial commitment, are the main beneficiaries in this adaption process.
    Keywords: Innovation, Firm growth, Business cycle, Firm size
    Date: 2016–10
  4. By: Ryan Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
    Abstract: A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within-firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.
    Keywords: Job reallocation ; Labor supply and demand ; Productivity
    JEL: O47 L11 E24 J63
    Date: 2017–02–07
  5. By: Biermann, Marcus
    Abstract: What is the effect of trade on the size distribution of firms? We collect historical data between 1882 and 1907 from the German Empire to address this question. Our data allow us to match three data sets according to the same geographic boundaries: industry census data, railway trade data and waterway trade data. The key finding is that trade liberalization impacts the firm size distribution heterogeneously across three size categories. We find evidence of a stark shift in employment share from small and medium firms towards larger firms and from small firms towards medium and large firms in firm share. A “Bartik” instrument is proposed to argue that the correlations described are indeed causal. A model of intra-industry trade sheds light on the economic mechanism at play. Comparative statics reveal that further economic integration captured by a fall in transport costs increases average firm size.
    JEL: F12 F15 F14
    Date: 2016
  6. By: Pierpaolo Battigalli; Carlo Chiarella; Stefano Gatti; Tommaso Orlando
    Abstract: We model theoretically and quantify empirically the impact of informational frictions on managerial decisions in the context of mergers and acquisitions. In particular, we focus on how bid premiums and methods of payment are affected by the bidder and target firms' degrees of opacity. To this end, we model the negotiation between bidder and target as a signaling game with two-sided private information. We then empirically test the model's predictions concerning the effects of target and bidder opacity on the simultaneous determination of the method of payment and the bid premium, by conditioning cross-sectionally on the basis of firms' stock trading properties, which we interpret as representative of individual firm opacity. Consistently with the predictions of our model, we find, by studying a sample of bids by and for U.S. publicly listed firms over the period 1985-2014, that both the likelihood of a stock bid and the bid premium increase with the opacity of the target, while the opacity of the bidder is related to lower bid premiums. JEL classification: G34, G14 Keywords: Asymmetric information, mergers and acquisitions, method of payment, bid premium
    Date: 2017
  7. By: Larin, Benjamin
    Abstract: The 2007-2008 financial crisis highlighted that a turmoil in the financial sector including bursting asset price bubbles can cause pronounced and persistent fluctuations in real economic activity. This justifies the consideration of evolving and bursting asset price bubbles as another source of fluctuations in business cycle models. Business cycle models should therefore include asset price bubble as another source for fluctuations. In this paper rational asset price bubbles are incorporated into a life-cycle RBC model as first developed by Ríos (1996). The calibration of the model to the post-war US economy and the numerical solution show that the model is able to depict plausible bubble-driven business cycles. In particular, the model generates i) a higher and empirically more plausible volatility of consumption at the cost of ii) a lower and empirically less plausible contemporaneous correlation of consumption with output than the life-cycle RBC model without bubbles.
    JEL: D58 E32 E44
    Date: 2016
  8. By: Picariello, Luca (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Workers can move across firms and take with them portable skills. This has an impact on how firms are organized and allocate tasks across workers. To reduce mobility, a profit maximizing firm may inefficiently allocate talented workers on tasks that reduce their outside option. In the existing literature, asymmetric information about workers' talents makes this retention strategy profitable, although inefficient. In this paper we let workers' skills be observable across firms, but task allocation to be non-contractible. Inefficient assignment of tasks to workers persists in this environment. We show that by organizing a firm as an equity-partnership, in which the total profit is shared, the efficient task allocation can be implemented and profit increased. This result is attained through shifting control rights to workers that become partners and decide over task allocation. Both partners and workers are retained in equilibrium. This paper provides a new rationale for the widespread presence of partnerships in human-capital intensive industries.
    Keywords: Task Allocation; Retention; Compensation Contracts; Partnerships
    JEL: D86 J24 J54 M52
    Date: 2017–02–12
    Abstract: This paper investigates the relationship between taxation and firm performance in developing countries. Taking firm-level data from the World Bank Enterprise Surveys (WBES) and tax data from the Government Revenue Dataset (ICTD/UNU-WIDER), our results suggest that tax revenue benefits to firm growth in developing countries, especially in low-income countries and lower-middle income countries. These findings are robust to the inclusion of alternative covariates and specifications, and do not appear to be sample dependent. We also provide evidence that the positive effect of taxation on firm growth falls significantly when corruption is too pervasive, and when the origin of tax revenue origin reduces government accountability. Lastly, our paper finds that the positive effect of domestic revenue on firm performance could channel through the financing of public infrastructures vital to firms operating in lower-income countries.
    Date: 2016–09
  10. By: Guzman Ourens (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and FNRS)
    Abstract: After the emergence and development of heterogeneous firm trade models, some (most notably Arkolakis, Costinot and Rodriguez-Clare 2012, ACR) have argue that a family of these models (e.g. a Melitz-type model with Pareto distributed firms) do not add to the evaluation of welfare effects of freer trade. In this paper we expand that model in two directions: we introduce a very simple growth mechanism and we allow for asymmetric countries. Introducing simple dynamics in the heterogeneous firm model adds new static and dynamic effects to the well-known decrease in prices that increases welfare in the static model. The constant level of nominal expenditure is affected as firm selection changes the average value of firms which modifies consumers' resource constraint. The growth rate of real consumption is also affected by firm selection since greater average efficiency means a larger amount of resources are required to create a new variety. Country asymmetry yields differentiated results between countries. We provide a welfare formula comparable to that in ACR to show how the new mechanisms can interplay in our model and highlight the effects of firm heterogeneity in this context. In all cases net welfare results depend on parameter values which highlights how much welfare evaluations depend on region's characteristics.
    Keywords: firm heterogeneity; expanding varieties; asymmetric countries; welfare
    JEL: F12 F15 H32 O40
    Date: 2017–02–24
  11. By: Qi Liu; Lei Lu; Bo Sun
    Abstract: This paper studies a principal-agent model in which the information on future firm performance is ambiguous and the agent is averse to ambiguity. We show that if firm risk is ambiguous, while stocks always induce the agent to perceive a high risk, options can induce him to perceive a low risk. As a result, options can be less costly in incentivizing the agent than stocks in the presence of ambiguity. In addition, we show that providing the agent with more incentives would induce the agent to perceive a higher risk, and there is a discontinuous jump in the compensation cost as incentives increase, which makes the principal reluctant to reset contracts frequently when underlying fundamentals change. Thus, compensation contracts exhibit an inertia property. Lastly, the model sheds some light on the use of relative performance evaluation, and provides a rationale for the puzzle of pay-for-luck in the presence of ambiguity.
    Keywords: Ambiguity ; Executive compensation ; Options ; Relative performance evaluation
    JEL: G30 J33
    Date: 2017–02
  12. By: Jan Ruffner (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael Siegenthaler (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: What is the effect of opening the labor market to foreign workers on the success of firms? We address this question by analyzing how firms in Switzerland were affected by the introduction of the free movement of persons with the European Union (EU) countries. This immigration reform granted all EU workers free access to the Swiss labor market. Our firm-level panel data models exploit the exceptional facts that the reform incidentally affected firms at different time periods and had a stronger effect on firmsclosetotheborder. We find that the Reform increased employment, skill intensity, and sales of incumbent firms, especially for those that relied heavily on foreign workers and had reported that they suffered from skill shortages before the reform. In these firms, the reform also increased labor productivity. We explain these effects through the higher innovation performance of incumbent firms and the reallocation of economic activity into highly affected regions, as evidenced by the entry of new establishments and by the changes in establishment size within multi-establishment firms.
    Date: 2016–12

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