nep-bec New Economics Papers
on Business Economics
Issue of 2017‒04‒30
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. CEO Behavior and Firm Performance By Bandiera, Oriana; Hansen, Stephen; Prat, Andrea; Sadun, Raffaella
  2. A Model of Managerial Talent: Addressing Some Puzzles in CEO Compensation By Stanimir Morfov; Manuel Santos
  3. Industry Growth through Spinoffs and Startups By OHYAMA Atsushi
  4. Regional labour market mobility. A network analysis of inter-firm relatedness By Shamnaaz B. Sufrauj; Giancarlo Corò; Mario Volpe
  5. Intangible Assets and Firms' Liquidity Holdings: Evidence from Japan By HOSONO Kaoru; MIYAKAWA Daisuke; TAKIZAWA Miho
  6. Shopping Time By Nicolas Petrovsky-Nadeau; Etienne Wasmer; Shutian Zeng
  7. Exchange rate movements and export market dynamics: Evidence from China By Huang, Xiaobing
  8. Performance and Risk of IOI Corporation Berhad By Harun, Nur Ilyani
  9. Working Capital Management during Financial Crises: Evidence from Japan By TSURUTA Daisuke
  10. Entrepreneurship, institutions and skills in low-income countries By Zuzana Brixiová; Balázs Égert
  11. The Macro-Dynamics of Sorting between Workers and Firms By Jeremy Lise; Jean-Marc Robin

  1. By: Bandiera, Oriana; Hansen, Stephen; Prat, Andrea; Sadun, Raffaella
    Abstract: We measure the behavior of 1,114 CEOs in Brazil, France, Germany, India, UK and US using a new methodology that combines (i) data on every activity the CEOs undertake during one workweek and (ii) a machine learning algorithm that projects these data onto scalar CEO behavior indices. Low values of the index are associated with plant visits, and one-on-one meetings with production or suppliers, while high values correlate with meetings with high-level C-suite executives, and several functions together, both from inside and outside the firm. We use these data to study the correlation between CEO behavior and firm performance within the framework of a firm-CEO assignment model. We show results consistent with significant firm-CEO assignment frictions, which appear to be more severe in lower-income regions. The productivity loss generated by inefficient assignment is equal to 13% of the productivity gap between high- and low-income countries in our sample.
    Keywords: CEO; leadership; unsupervised learning
    Date: 2017–04
  2. By: Stanimir Morfov (University of Miami); Manuel Santos (University of Miami)
    Abstract: In this paper we present an adverse selection model of managerial talent. The model can account for some empirical regularities in executive compensation such as the higher level of CEO pay and the prominence of incentive pay in large and high-volatility firms as well as the controversial evidence on career concerns. Relative performance evaluation (RPE) is only obtained if the performance function is weakly separable on managerial talent and internal productivity factors. These predictions stand in sharp contrast to those of competing theories based upon moral hazard, managerial talent, and rent extraction.
    Keywords: Managerial talent; adverse selection; optimal contract; firm’s size; volatility of company returns; CEO age; relative performance evaluation Publication Status: Ex. Under Review
    JEL: D82 G30 J33
    Date: 2017–03–28
  3. By: OHYAMA Atsushi
    Abstract: The literature on industry life cycle suggests that there is some underlying mechanism that generates differences in time for industries reaching their peaks. What causes variation in such peak times across industries? In this paper, I use the Japanese Census of Manufacture and investigate (i) whether creation and destruction of submarkets in an industry affect the length of positive net entry periods and subsequent entry rates, (ii) what type of firm is more likely to be actively engaged in a newly created or destructed submarket, and (iii) how reallocation of unrealized opportunities from incumbent firms to spinoff firms affects the entry process. This study reveals that the creation and destruction of a submarket allow an industry to continue attracting new entrants, that startup and spinoff firms are more likely to enter a newly created submarket than incumbent firms, and that new entry is encouraged when unrealized business opportunities are reallocated smoothly.
    Date: 2017–03
  4. By: Shamnaaz B. Sufrauj (Department of Economics, University Of Venice Cà Foscari); Giancarlo Corò (Economics, Languages and Entrepreneurship, University Of Venice Cà Foscari); Mario Volpe (Department of Economics, University Of Venice Cà Foscari)
    Abstract: Labour market rigidity is known to hamper the proper adjustment of an economy, thus, making it less resilient to shocks. This paper investigates the characteristics and resilience of the regional labour flow network in Veneto, a region famous for its industrial districts and the expertise of its workforce. A unique database of inter-firm worker mobility is used and the made-in-Italy relatedness to other industries is quantified. Descriptive results suggest that permanent-contract workers are more mobile within-sector than fixed-term contractors. The latter are more mobile across sectors. A finer disaggregation of the made-in-Italy industries shows that textile, food and woodwork are highly related to leisure-retail, logistics-wholesale and agriculture. These results can orient policy-making in getting faster labour reallocation. Network analysis establishes a number of stylised facts about labour flow networks, in particular, a hierarchical organisation of flows and a preference for workers to move from low-connected to high-connected firms and vice-versa, i.e. disassortativity. Unlike previous research, this paper identifies clusters of a non-spatial nature, that are, based on the intensity of labour flows. Regression analysis shows that labour mobility, both in and out, is beneficial for firms. However, being located inside labour clusters negatively affects firm performance. Interestingly, when these clusters include MNEs, they benefit. These results combined suggest that variety of connections prevails over standardisation.
    Keywords: Labour mobility, network analysis, skill-relatedness cross-industry linkages
    JEL: J24 J62 L14 R23 F23
    Date: 2017
  5. By: HOSONO Kaoru; MIYAKAWA Daisuke; TAKIZAWA Miho
    Abstract: It has been an important open question why firms hold seemingly "excess" liquidity (e.g., cash). Using Japanese firm-level large panel data accounting for 40,000 firms over the period 2000-2013, first, we find a positive correlation between firms' liquidity holding as measured by the ratio of liquidity assets to total assets and the ratio of intangible to tangible assets held by the firms. This result is consistent with the empirical implication of our theoretical model based on collateral constraints for borrowing, and suggests that the increasing importance of nonpledgeable intangible assets in firms' production process partly explains firms' liquidity holding. Second, we also find that such positive correlation is stronger for the firms in industries associated with higher complementarity between tangible and intangible assets. This result suggests that the firms' liquidity holding reflects the technological heterogeneity among industries.
    Date: 2017–03
  6. By: Nicolas Petrovsky-Nadeau (Tepper School of Business); Etienne Wasmer (Département d'économie); Shutian Zeng
    Abstract: There is a renewed interest in macroeconomic theories of search frictions in the goods market that help solve quantitative puzzles on amplification and persistence of GDP, sales, inventory and advertisement. This requires a deeper understanding of the cyclical properties of the intensive margins of search in this market. Using the American Time Use Survey we construct an indicator of shopping time. It includes both searching and purchasing goods and is based on 25 time use categories (out of more than 400 categories). We find that average time spent shopping declined in the aggregate over the period 2008–2010 compared to 2005–2007. The decline was largest for the unemployed who went from spending more time shopping for goods than the employed to roughly the same, or even less, time. Cross-state and individual regressions indicate pro-cyclical consumer shopping time in the goods market. This evidence poses a challenge for models in which price comparisons are a driver of business cycles.
    Keywords: Goods market search; Time allocation; American time use survey; Business cycles
    JEL: D12 J22
    Date: 2016–06
  7. By: Huang, Xiaobing
    Abstract: This paper highlights the relationship between foreign exchange rate fluctuations and firms' export market dynamics using a Chinese firm-level production data and a firm-level trade data over the period of 2000-2006. The author adopts a discrete-time survival model in his empirical investigation and further executes several extensions and robustness checks to the baseline results. The main results of the paper can be summarized as follows: First, an exchange rate appreciation increases the likelihood of export market exit, reduces the capability of export market survival and decreases the probability of export market entry. Second, high productivity firms are less likely to exit from export markets and more likely to enter and survive in export markets in the period of exchange rate appreciation. Third, exchange rate appreciation decreases the likelihood of export market entering and increases the likelihood of export market exiting more for private-owned firms, young firms and non-eastern firms. Finally, other sources of heterogeneity, such as extensive margins, import demand elasticity, different destinations, U.S. dollar peg, and the liberalization of trading rights also matter regarding the effect of exchange rate changes.
    Keywords: exchange rate movements,export market dynamics,firm heterogeneity,China
    JEL: F14 F31 F32 F41
    Date: 2017
  8. By: Harun, Nur Ilyani
    Abstract: The study aims to measure corporate governance and its impact firm performance and risk of IOI Corporation Berhad (IOI). The method of the study is regression analysis of IOI by using SPSS System. The study found that IOI has a positive relationship between return on asset and return on equity. The ROA and leverage ratio also was a positive relationship. Meaning that the company has earns more profit, at the same time the company does not do any credit businesses. The regression analysis show that 3 out of 13 factors are significantly influence the profitability of IOI.
    Keywords: credit risk; liquidity risk; profitability; and macroeconomics
    JEL: E0 E2 E4 E44 G1 G2
    Date: 2017–03–29
  9. By: TSURUTA Daisuke
    Abstract: This paper demonstrates the adjustment speed of firm working capital and the relationships between working capital and firm performance in Japan during the recent global financial crisis. During this period, working capital possibly was excessive and therefore harmful to firm performance given the sudden decrease in sales. Using quarterly firm-level data, we find that the adjustment of working capital was weaker during the crisis. Moreover, the negative relationship between excess working capital and firm performance became more significant during the crisis, especially for larger firms. However, we find no evidence for similar observations after late 2009, suggesting that this crisis-related, working capital-firm performance effect does not last long. To finance excessive working capital, firms borrow funds from banks and reduce their internal cash during periods of both crisis and non-crisis.
    Date: 2017–03
  10. By: Zuzana Brixiová (SALDRU, University of Cape Town and Institute of Labor Economics (IZA)); Balázs Égert (OECD Economics Department; University of Paris X-Nanterre and CESifo)
    Abstract: This paper develops a model of costly firm creation in an economy with weak institutions, costly business environment as well as skill gaps where one of the equilibrium outcomes is a low-productivity trap. The paper tests the implications of the model using a cross-sectional dataset including about 100 countries. Both theoretical and empirical results suggest that to move the economy into a productive equilibrium, complementarity matters: reforms to improve the business environment tend to be more effective in creating productive firms when accompanied by narrowing skill gaps. Similarly, more conducive business regulations amplify the positive impact on firm creation of better education and reduced skill mismatches. To escape a low-productivity trap, policymakers should thus create a pro-business framework and a well-functioning education system.
    Keywords: Model of start-ups and strategic complements, institutions, education, low-income countries, threshold regression
    JEL: L26 J24 J48 O17
    Date: 2017
  11. By: Jeremy Lise (University College of London); Jean-Marc Robin (Département d'économie)
    Abstract: We develop an equilibrium model of on-the-job search with ex ante heterogeneous workers and firms, aggregate uncertainty, and vacancy creation. The model produces rich dynamics in which the distributions of unemployed workers, vacancies, and worker-firm matches evolve stochastically over time. We prove that the surplus function, which fully characterizes the match value and the mobility decision of workers, does not depend on these distributions. This result means the model is tractable and can be estimated. We illustrate the quantitative implications of the model by fitting to US aggregate labor market data from 1951–2012. The model has rich implications for the cyclical dynamics of the distribution of skills of the unemployed, the distribution of types of vacancies posted, and sorting between heterogeneous workers and firms.
    Keywords: On-the-job search; Heterogeneity; Aggregate fluctuations; Mismatch
    JEL: E24 E32 J63 J64
    Date: 2016

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