nep-bec New Economics Papers
on Business Economics
Issue of 2017‒05‒28
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Impact of CSR Certification on Firm Profitability, Wages and Sales By Peter Huber; Eva Abramuszkinová Pavlíková; Marcela Basovníková
  2. Does patenting always help new-firm survival? By Masatoshi Kato; Koichiro Onishi; Yuji Honjo
  3. Firm Dynamics and Immigration: The Case of High-Skilled Immigration By Michael E. Waugh
  4. Price Discrimination and Dispersion under Asymmetric Profiling of Consumers By Paul Belleflamme; Wing Man Wynne Lam; Wouter Vergote
  5. Globalization and Executive Compensation By Wolfgang Keller; William W. Olney
  6. Procurement of Advanced Technology and Welfare-Reducing Vertical Integration By Lee, Sang-Ho; Matsumura, Toshihiro; Park, Chul-Hi
  7. Building a firm level dataset for the analysis of industrial dynamics and demography By M. Grazzi; C. Piccardo; C. Vergari
  8. Open Source and Competition Strategy Under Network Effects By Yu Wang; Yu Chen; Bonwoo Koo
  9. Foreign Ownership and Skill-biased Technological Change By Michael Koch; Marcel Smolka
  10. Coherent financial cycles for G-7 countries: Why extending credit can be an asset By Yves S. Schüler; Paul P. Hiebert; Tuomas A. Peltonen
  11. Currency choice in international trade: a new monetarist approach and firm-level evidence By Liu, Tao; Lu, Dong; Zhang, Ruifeng

  1. By: Peter Huber (WIFO); Eva Abramuszkinová Pavlíková; Marcela Basovníková
    Abstract: We use synthetic control group methods to analyse the causal impact of CSR certification on the economic performance of a small set of Italian manufacturing firms that underwent SA8000 certification in 2009 or 2010. We find no evidence of a positive or negative impact of SA8000 certification on firm profitability and wages. The only outcome variable for which effects are positive and weakly significant in many instances are firms' turnover to assets ratios. From this we conclude that SA8000 certification has no strong impact on firm profitability and wage costs, but that it may be a viable marketing tool that increases company sales.
    Keywords: Corporate Social Responsibility, Synthetic Control Groups, Company Performance, SA8000 certification
    Date: 2017–05–22
  2. By: Masatoshi Kato (School of Economics, Kwansei Gakuin University); Koichiro Onishi (Faculty of Intellectual Property, Osaka Institute of Technology); Yuji Honjo (Faculty of Commerce, Chuo University)
    Abstract: This study examines the role of patenting activities in new-firm survival, using a data set of firms founded from 2003 to 2010 in the Japanese manufacturing and software sectors. In particular, we distinguish the effects of patenting activities of chief executive officers (CEOs) from those of patenting activities of firms, taking into account exit routes: bankruptcy, voluntary liquidation, and merger. It is found that firms that engaged in patenting activities after start-up are less likely to go bankrupt. It is also found that firms whose CEOs have experience in patenting activities before start-up are less likely to go bankrupt. In contrast, we provide evidence that CEOs' involvement in patenting activities after start-up are not helpful for survival. Furthermore, the results based on subsamples according to firm age show that while firms' patenting activities do not increase the probability of survival in the early years since start-up, they help new firms surviving after a certain period of time since start-up. While CEOs' pre-entry patenting activities have a significant explanatory power in reducing the probability of bankruptcy within a certain period of time since start-up, they have no longer significant effect afterwards. Further, CEOs' patenting activities after start-up increase the probability of exit through bankruptcy and voluntary liquidation especially after a certain period of time since start-up.
    Keywords: New firm, patenting, chief executive officer, survival, firm age
    Date: 2017–05
  3. By: Michael E. Waugh
    Abstract: This paper shows how the dynamics of the firm yield new insights into the short- and long-run economic outcomes from changes in immigration policy. I quantitatively illustrate these insights by evaluating two policies: an expansion of and the elimination of the H-1B visa program for skilled labor. A change in policy changes firms’ entry and exit decisions as they dynamically respond to changes in market size. The dynamic response of firms amplifies changes in relative wages as labor demand shifts with the distribution of firms. Firms’ responses also lead to the rapid accrual of aggregate gains/losses in output and consumption. The welfare implications of policy changes depend critically on who bears the burden of creating new firms.
    JEL: A1 D92 F22 J61
    Date: 2017–05
  4. By: Paul Belleflamme (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Wing Man Wynne Lam (Department of Economics, University of Liège); Wouter Vergote (CEREC, University Saint-Louis - Bruxelles)
    Abstract: Two duopolists compete in price on the market for a homogeneous product. They can use a 'profiling technology' that allows them to identify the willingness-to-pay of their consumers with some probability. If both firms have profiling technologies of the exact same precision, or if one firm cannot use any profiling technology, then the Bertrand paradox continues to prevail. Yet, if firms have technologies of different precisions, then the price equilibrium exhibits both price discrimination and price dispersion, with positive expected profits. Increasing the precision of both firms’ technologies does not necessarily harm consumers.
    Keywords: price discrimination,price dispersion,Bertrand competition
    Date: 2017–04
  5. By: Wolfgang Keller; William W. Olney
    Abstract: This paper examines the role of globalization in the rapid increase in top incomes. Using a comprehensive data set of thousands of executives at U.S. firms from 1993-2013, we find that exports, along with technology and firm size, have contributed to rising executive compensation. Isolating changes in exports that are unrelated to the executive's talent and actions, we show that globalization has affected executive pay not only through market channels but also through non-market channels. Furthermore, exogenous export shocks raise executive compensation mostly through bonus payments in poor-governance settings, in line with the hypothesis that globalization has enhanced the executive's rent capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that rent capture is an important part of this story.
    JEL: F14 J3
    Date: 2017–05
  6. By: Lee, Sang-Ho; Matsumura, Toshihiro; Park, Chul-Hi
    Abstract: This article presents a model in which two downstream firms compete in a differentiat-ed product market and choose whether to adopt new advanced inputs supplied by the monopolist, while standard inputs are competitively supplied. When the monopoly sup-plier is independent, from the welfare viewpoint, the incentive to adopt the new inputs is insufficient (can be excessive) given that the rival does not adopt (adopts). When the monopoly supplier and one downstream firm merge, such integration increases the un-integrated downstream firm’s incentive to adopt the new input supplied by the rival and thus helps the spread of new inputs in the industry. However, because of the collusive effect of increasing the prices of the final products, vertical integration can be harmful for welfare despite the reduction in the welfare loss due to double marginalization and the increase in product quality.
    Keywords: demand-enhancing inputs; commitment to procure; make-or-buy decision; CSR pro-curement
    JEL: D43 L13 L41
    Date: 2017–05–05
  7. By: M. Grazzi; C. Piccardo; C. Vergari
    Abstract: This paper illustrates the building procedure of a firm-level panel dataset that merges several sources of information concerning the various activities of business firms. The aim of this work is to achieve a detailed dataset able to shed light on firm demographics, in terms of survival, entry and exit processes, distinguishing between “voluntary" and “involuntary" exits. Moreover, the derived dataset allows to monitor the innovation activities of the firms and also to capture complementarities between two instruments of intellectual property rights (IPRs), namely granted patents and registered trademarks. We assess the validity of the proposed procedures resorting to the virtual universe of Italian limited liability companies as provided by Bureau van Dijk (BvD). The dataset covers more than 1 million companies operating in both manufacturing and service sectors and contain financial and economic information, as well as, among the others, the ownership structure and administrative procedures undergone by the firms, which may lead to firm exit. The main purpose of the paper is to provide a unified set of procedures to help the researcher dealing with the vast amount of information available on corporate firms and of ever increasing size. This will also facilitate the replication of empirical analyses, across researchers working on dataset with similar characteristics, although from different countries or data providers.
    JEL: C81 L60 L80 O14 O34
    Date: 2017–05
  8. By: Yu Wang (School of Economics, Nanjing University); Yu Chen (University of Graz); Bonwoo Koo (University of Waterloo)
    Abstract: This study analyzes a firm's decision to adopt an open source strategy in the development of a primary system product that has an indirect network effect on complementary accessory products, and evaluates its impact on market competition and social welfare. It shows that open source systems can drive proprietary systems out of the market if system development costs are high and the network effect is strong. This study also shows that the presence of open source systems can benefit proprietary firms due to consumers' higher willingness-to-pay for accessory products, and increase total industry profit and social welfare.
    Keywords: Hotelling model, packaged goods, network effect, horizontal product differentiation
    JEL: L14 L15 L17 L86
    Date: 2017–05
  9. By: Michael Koch (University of Bayreuth, Germany); Marcel Smolka (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: Understanding the effects of foreign direct investment and the behavior of multinational enterprises (MNEs) is a core issue in the study of international economics. We exploit within-firm variation in ownership structure induced by foreign acquisitions in Spain to provide a new angle on the relationship among foreign ownership, technology, and skills. We first develop a model in which heterogeneous firms decide endogenously about the level of technology, the share of high-skilled workers, and the level of worker training. Foreign-owned firms implement better technology than domestically owned firms due to access to foreign markets through the foreign parent. This market size effect, coupled with a technology-skill complementarity, raises the demand for high-skilled workers as well as worker training upon acquisition. The largest productivity gains predicted by the model accrue to those firms that optimally combine better technology with a larger share of high-skilled workers in production and a better trained workforce. We test these predictions on a longitudinal data set of Spanish manufacturing firms. Combining firm fixed effects with a suitable propensity score weighting estimator, we find empirical evidence that foreign-acquired firms, not only increase their technology level, but also engage in skill upgrading upon acquisition (through both hiring and training). Moreover, we show that these changes are driven by the market size effect, and not by changes in the ownership structure per se. Finally, we reveal a technology-skill complementarity in the data implying that the productivity gains associated with better technology are magnified for firms actively engaging in skill upgrading. Overall, our paper provides strong evidence for the notion that foreign MNEs "inject" skill-biased technological change into their affiliated firms.
    Keywords: Multinational Enterprises, Mergers and Acquisitions, Skill-biased Technological Change, Worker Training Productivity
    JEL: D22 D24 F23 G34
    Date: 2017–05–23
  10. By: Yves S. Schüler; Paul P. Hiebert; Tuomas A. Peltonen
    Abstract: Failing to account for joint dynamics of credit and asset prices can be hazardous for countercyclical macroprudential policy. We show that composite financial cycles, emphasising expansions and contractions common to credit and asset prices, powerfully predict systemic banking crises. Further, the joint consideration yields a more robust view on financial cycle characteristics, reconciling an empirical puzzle concerning cycle properties when using two popular alternative methodologies: frequency decompositions and standard turning point analysis. Using a novel spectral approach, we establish the following facts for G-7 countries (1970Q1-2013Q4): Relative to business cycles, financial cycles differ in amplitude and persistence – albeit with heterogeneity across countries. Average financial cycle length is around 15 years, compared with 9 years (6.7 excluding Japan) for business cycles. Still, country-level business and financial cycles relate occasionally. Across countries, financial cycle synchronisation is strong for most countries; but not for all. In contrast, business cycles relate homogeneously. JEL Classification: C54, E32, E44, E58, G01
    Keywords: Financial cycle, Spectral analysis, Macroprudential policy
    Date: 2017–05
  11. By: Liu, Tao; Lu, Dong; Zhang, Ruifeng
    Abstract: Financial market imperfections severely restrict currency use in international trade. We develop a unified search-based framework with financial frictions to address the determinants for currency, emphasizing the roles of trade finance and financial market development, as well as macro, micro factors and firm-level bargaining power. In an open economy monetary search model with financial intermediation, the usage of a particular currency will emerge endogenously and strategic complementarities among exporters, importers, and financial intermediation reinforce the status of international currency. With highly disaggregated data from Colombia, we provide firm-level evidence that financial factors significantly affect the patterns of currency usage. We show that exporters prefer the currency with a more developed financial market, especially for small firms in financially vulnerable sectors. In particular, a developing country with medium-level of financial development could enhance its currency usage by more than 10% if they further develop their financial market. Meanwhile, bad monetary policy and low bargaining power of exporters will hurt the popularity of currency, although empirically firm-level bargaining power only has a secondary effect. These results provide important policy implications for developing countries that seek to improve the international role of its own currency but suffer from financial market underdevelopment, unstable monetary policy, and inferior bargaining positions of firms, emphasizing the role of finaical market development and macroeconomic stability.
    Keywords: Invoicing currency; Trade finance; Financial intermediation; Financial development; Monetary search
    JEL: F1 F31 F41
    Date: 2017–05–15

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