nep-bec New Economics Papers
on Business Economics
Issue of 2017‒07‒02
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Strategic corporate social responsibility By Planer-Friedrich, Lisa; Sahm, Marco
  2. The Determinants of Growth in the Information and Communication Technology (ICT) Industry: A Firm-Level Analysis By Giorgio Canarella; Stephen M. Miller
  3. Large Firm Dynamics and Secular Stagnation: Evidence from Japan and the U.S. By Yoshihiko Hogen; Ko Miura; Koji Takahashi
  4. Insolvency regimes, zombie firms and capital reallocation By Muge Adalet McGowan; Dan Andrews; Valentine Millot
  5. Asymmetries in the Firm's Use of Debt to Changing Market Values By Ferris, Stephen; Hanousek, Jan; Shamshur, Anastasiya; Tresl, Jiri
  6. Eco-Firms and Sequential Adoption of Environmental Corporate Social Responsibility in the Managerial Delegation By Lee, Sang-Ho; Park, Chul-Hi
  7. Political Connections and Antidumping Investigations: Evidence from China By ZHANG Hongyong
  8. Firms' Dynamics and Business Cycle: New Disaggregated Data By Lorenza Rossi; Emilio Zanetti Chini
  9. Does Religion Make You Sick? Evidence of a Negative Relationship between Religious Background and Health By Berggren, Niclas; Ljunge, Martin
  10. Labour market adjustment in Europe during the crisis: microeconomic evidence from the Wage Dynamics Network survey By Izquierdo, Mario; Jimeno, Juan Francisco; Kosma, Theodora; Lamo, Ana; Millard, Stephen; Rõõm, Tairi; Viviano, Eliana
  11. Does Assigning More Women to Managerial Positions Enhance Firm Productivity? Evidence from Sweden By Sato, Yoshihiro; Ando, Michihito
  12. The causal impact of social Connections on firms' outcomes By Eliason, Marcus; Hensvik, Lena; Kramarz, Francis; Nordström Skans, Oskar
  13. Optimal Privatization Policy under Private Leadership in Mixed Oligopolies By Lin, Ming Hsin; Matsumura, Toshihiro
  14. Collusive Agreements in Vertically Differentiated Markets By Marco A. Marini

  1. By: Planer-Friedrich, Lisa; Sahm, Marco
    Abstract: We examine the strategic use of Corporate Social Responsibility (CSR) in imperfectly competitive markets. The level of CSR determines the weight a firm puts on consumer surplus in its objective function before it decides upon supply. First, we consider symmetric Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Third, we consider heterogeneous firms and show that asymmetric costs imply asymmetric CSR levels.
    Keywords: Corporate Social Responsibility,Market Concentration,Cournot Competition,Entry Deterrence,Strategic Delegation,Evolutionary Stability
    JEL: D42 D43 L12 L13 L21 L22
    Date: 2017
  2. By: Giorgio Canarella (University of Nevada, Las Vegas); Stephen M. Miller (University of Nevada, Las Vegas)
    Abstract: Why do some firms grow faster than others? This question has become the focus of a large number of empirical studies in industrial organization, strategic management, and entrepreneurship since the publications of Gibrat (1931) and Penrose (1959). Using an unbalanced panel data set of 85 U.S. information and communication technology (ICT) firms that survived over the period from 1990 to 2013, we examine the effect of firm size, agency costs, R&D investments, capital structure, profitability, and the Great Recession of 2007-2009 on firm growth. Adopting the two-step, system, generalized-method-of-moments estimator for linear dynamic panel models (Blundell and Bond, 1998), we document that growth in the ICT industry is not stochastic, as predicted by Gibrat (1931), but driven by systematic factors. We find compelling evidence that in the ICT industry: (i) firm growth exhibits positive persistence, which endorses the controversial "success-breeds-success" evolutionary hypothesis; (ii) agency costs and financial leverage exert a negative effect on firm growth; (iii) R&D investment and financial performance generate a positive effect on firm growth; (iv) the Great Recession (2007-2009) produced a negative effect on firm growth; (v) a nonlinear, inverted U-shaped relationship exists between firm size and firm growth; and (vi) Gibrat’s law does not hold. Our findings remain robust to transformations using first differences and forward orthogonal deviations as well as principal components reductions. These results are new to the literature, since the dynamics of firm growth has not been documented at the ICT industry level. Noteworthy policy implications emerge because the growth dynamics of the ICT industry move this sector toward more concentration and less competition.
    Keywords: ICT industry; Agency costs; Firm growth; Panel data; system-GMM
    JEL: G21 G28 G32 G34
    Date: 2017–06
  3. By: Yoshihiko Hogen (Bank of Japan); Ko Miura (Bank of Japan); Koji Takahashi (Bank of Japan)
    Abstract: Focusing on the recent secular stagnation debate, this paper examines the role of large firm dynamics as determinants of productivity fluctuations. We first show that idiosyncratic shocks to large firms as well as entry, exit, and reallocation effects account for 30 to 40 percent of productivity fluctuations in Japan and the U.S. Second, since the mid-2000s, the slowdown in large foreign firm entry into the U.S. has led to a decline in business dynamics and downward pressures on productivity growth. Third, we identify demand and supply shocks by matching idiosyncratic large-firm shocks in the granular residual (Gabaix, 2011) and changes in sectoral inflation rates and show that the prolonged slowdown in productivity growth in Japan and the U.S. was mostly driven by supply shocks. Overall, our results support the supply-side views of Gordon (2012, 2015, 2016) in the secular stagnation debate.
    Keywords: Granular Hypothesis; Entry-Exit; Productivity Growth; Secular Stagnation
    JEL: E13 E23 E32 D21
    Date: 2017–06–21
  4. By: Muge Adalet McGowan (OECD); Dan Andrews (OECD); Valentine Millot (OECD)
    Abstract: This paper explores cross-country differences in the design of insolvency regimes and their potential links with two inter-related sources of labour productivity weakness: the survival of “zombie” firms (firms that would typically exit in a competitive market) and capital misallocation. New cross-country policy indicators of insolvency regimes are constructed based on countries’ responses to a recent OECD questionnaire, which aimed to better capture the key design features of insolvency which impact the timely initiation and resolution of insolvency proceedings. According to these metrics, cross-country differences in the design of insolvency regimes are significant. Firm level analysis shows that reforms to insolvency regimes which reduce barriers to corporate restructuring and the personal cost associated with entrepreneurial failure may reduce the share of capital sunk in zombie firms. These gains are partly realised via the restructuring of weak firms, which in turn spurs the reallocation of capital to more productive firms. These findings carry strong policy implications, in light of the fact that there is much scope to reform insolvency regimes in many OECD countries and given evidence that rising capital misallocation and the increasing survival of low productivity firms have contributed to the productivity slowdown.
    Keywords: capital misallocation, firm exit, personal and corporate insolvency, productivity, zombie firms
    JEL: D24 K35 O40 O43 O47
    Date: 2017–06–30
  5. By: Ferris, Stephen; Hanousek, Jan; Shamshur, Anastasiya; Tresl, Jiri
    Abstract: Using a large sample of U.S. firms over the period, 1984 to 2013, this study examines the relation between market and book leverage ratios. Unlike Welch (2004) who contends that changes in market leverage do not induce adjustments in book leverage, we find an asymmetric effect. That is, firms adjust their book leverage relative to market leverage only when the changes in market leverage are due to increases in the value of the firm's equity. No adjustment is observed when firm equity values decrease. We observe a number of interesting differences between those firms that make large and small capital structure adjustments in response to changing equity prices. Our results are consistent with Barclay, Morellec and Smith (2006) who argue that the optimal level of debt decreases in the presence of corporate growth options.
    Keywords: market leverage; book leverage; capital structure; adjustment speed
    JEL: C23 G32
    Date: 2017–06
  6. By: Lee, Sang-Ho; Park, Chul-Hi
    Abstract: This article investigates the strategic environmental corporate social responsibility (ECSR) of polluting firms in the presence of eco-firms. When the firms decide ECSR sequentially within the framework of the managerial incentive design and then face simultaneous price competition, we show that firms will adopt ECSR and purchase abatement goods to mitigate competition if the products are more substitutable, but the late adopter chooses lower ECSR and thus earns higher profit. It can partially explain the current expansive adoption of ECSR as an industry-wide wave.
    Keywords: environmental corporate social responsibility; eco-firms; abatement goods; late adopter advantage
    JEL: L13 L21 M14
    Date: 2017–06–26
  7. By: ZHANG Hongyong
    Abstract: Do political connections affect antidumping (AD) investigations? To address this question, we use antidumping filings data combined with micro data on Chinese manufacturing firms for the period 1998-2007. The political connections of a firm are defined by whether it has state-owned capital or whether it is under the administration of central or provincial government. Estimating a probit model of AD filings at the firm level, we find that strong political connections significantly increase the likelihood of AD petitions and affirmative final dumping decisions. State-owned enterprises, firms affiliated with the central or provincial government, low productivity firms, and large firms tend to file AD investigations in China. The industry-level estimation results also confirm that industries with a greater presence of state-owned enterprises are likely to receive trade protection from the Chinese government, controlling for import penetration, year, and industry fixed effects.
    Date: 2017–06
  8. By: Lorenza Rossi (Department of Economics and Management, University of Pavia); Emilio Zanetti Chini (Department of Economics and Management, University of Pavia)
    Abstract: We provide stylized facts on firms dynamics by disaggregating U.S. yearly data from 1977 to 2013. To this aim, we use an unobserved component-based method, encompassing several classical regression-based techniques currently in use. Our new time series of entry and exit of firms at establishment level are feasible proxies of business cycle. Exit is a leading and countercyclical indicator, while entry is lagging and procyclical. A structural econometric analysis supports the findings of the most recent theoretical literature on firms dynamics. Standard macroeconometric models estimated from our data outperform their equivalents estimated using the existing series.
    Keywords: Entry and Exit, State Space, Business Cycle, Disaggregation, SVAR.
    JEL: C13 C32 C40 E30 E32
    Date: 2017–06
  9. By: Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Ljunge, Martin (Research Institute of Industrial Economics (IFN))
    Abstract: Religious beliefs and practices influence individual lives and societies in many ways. We study how religion affects self-assessed health, which in turn is important for both individual well-being and productivity. A religious background predicts worse health. As the previous literature has not been able to rule out reverse causality, we apply a novel method that does. The health of the children of immigrants in 30 European countries is related to different measures of religiosity in their mothers’ birth countries. Since religiosity in the mothers’ birth countries predicts children’s religiosity (through transmission in the family), we can use the former as a measure of the latter. Moreover, the children’s health arguably cannot affect the religiosity of their mothers’ home countries (measured several decades earlier). Furthermore, the negative relationship between religious background and health is robust to accounting for a range of individual and ancestral country characteristics, to excluding the most and least religious ancestral countries, and to accounting for systematic differences across ancestral continents. The negative relationship, which we also find in U.S. data, suggests that the positive correlations between health and religiosity in the earlier literature are not due to religion promoting health.
    Keywords: Health; Religion; Children of Immigrants
    JEL: I19 Z12
    Date: 2017–06–21
  10. By: Izquierdo, Mario; Jimeno, Juan Francisco; Kosma, Theodora; Lamo, Ana; Millard, Stephen; Rõõm, Tairi; Viviano, Eliana
    Abstract: Against the backdrop of continuing adjustment in EU labour markets in response to the Great Recession and the sovereign debt crisis, the European System of Central Banks (ESCB) conducted the third wave of the Wage Dynamics Network (WDN) survey in 2014-15 as a follow-up to the two previous WDN waves carried out in 2007 and 2009. The WDN survey collected information on wage-setting practices at the firm level. This third wave sampled about 25,000 firms in 25 European countries with the aim of assessing how firms adjusted wages and employment in response to the various shocks and labour market reforms that took place in the European Union (EU) during the period 2010-13. This paper summarises the main results of WDN3 by identifying some patterns in firms’ adjustments and labour market reforms. It seeks to lay out the main lessons learnt from the survey in terms of both the general response of EU labour markets to the crisis and how these responses varied across the countries that took part in the survey. JEL Classification: E24, J30, J52, J68
    Keywords: labour market adjustment, labour market reforms, survey data, wage dynamics network
    Date: 2017–06
  11. By: Sato, Yoshihiro (European Institute of Japanese Studies); Ando, Michihito (National Institute of Population and Social Security Research)
    Abstract: We analyze whether gender composition at non-board managerial levels has any impact on firm productivity and other related outcomes in the service sector using a linked employer-employee dataset from Sweden. Exploiting within-firm variation, we apply a difference-in-differences propensity score matching method to address an endogeneity issue. Our results suggest no significant effects on productivity but significant positive effects on firms' growth in terms of value added and labor inputs when a firm “replaces” a male manager with a woman. We do not observe any impact when a firm “appoints” a woman instead of a man to a new managerial position.
    Keywords: Gender; Gender diversity; Firm productivity; Manager; Difference-in-differences matching; Propensity score matching
    JEL: J16 J24 J71 J82
    Date: 2017–01–09
  12. By: Eliason, Marcus (IFAU - Institute for Evaluation of Labour Market and Education Policy); Hensvik, Lena (IFAU - Institute for Evaluation of Labour Market and Education Policy); Kramarz, Francis (CREST, Ecole Polytechnique, CEPR); Nordström Skans, Oskar (Department of Economics, Uppsala University)
    Abstract: The paper studies how social connections affect firm-level hiring decisions and performance. We characterize the social connections of firms’ employees using register data and for causal identification we use job displacements, which create directed positive shocks towards connected firms by increasing these firms’ available supply of connected labor. We ascertain that our results are fully driven by these directed supply shocks. Our results show that firms appear to prefer to hire employed workers to whom they are connected over unconnected or unemployed workers. Employed and connected workers mostly go to high-productivity firms, whereas unemployed and unconnected workers tend to go to low-productivity firms. Strong connections – family, recent, durable, formed in small groups, between socially similar agents – matter the most. A displacement shock causes connected firms, in particular low-productive ones, to hire more of the connected workers, while leaving unconnected hires and separations essentially unaffected. Increases in the supply of connected labor, therefore, cause the creation of additional jobs at the firm level. By using these shocks, we can also show that hiring connected workers has a positive causal impact on firm performance. Our results are consistent with a stylized framework where connections reduce hiring frictions and where the firms’ ability to hire connected workers is a function of these workers’ outside options.
    Keywords: networks; job search; job displacement; job creation
    JEL: J23 J30 J60
    Date: 2017–06–09
  13. By: Lin, Ming Hsin; Matsumura, Toshihiro
    Abstract: We discuss optimal privatization policies in mixed oligopolies in which a public firm is the Stackelberg follower (private leadership). We find that under constant marginal cost, the optimal degree of privatization is zero. When the marginal cost is increasing, however, the optimal degree is never zero, and full privatization can be optimal. These results suggest that the optimal privatization policy depends on the cost conditions. We also find that the optimal degree of privatization is substantially lower under private leadership than in the simultaneous-move model when there is no cost difference between public and private firms.
    Keywords: private leadership; mixed oligopoly; mixed ownership in public firms
    JEL: H42 L13
    Date: 2017–06–27
  14. By: Marco A. Marini (University of Rome La Sapienza)
    Abstract: This paper introduces a number of game-theoretic tools to model collusive agreements among firms in vertically differentiated markets. I firstly review some classical literature on collusion between two firms producing goods of exogenous different qualities. I then extend the analysis to a n-firm vertically differentiated market to study the incentive to form either a whole market alliance or partial alliances made of subsets of consecutive firms in order to collude in prices. Within this framework I explore the price behaviour of groups of colluding firms and their incentive to either pruning or proliferating their products. It is shown that a selective pruning within the cartel always occurs. Moreover, by associating a partition function game to the n-firm vertically differentiated market, it can be shown that a sufficient condition for the cooperative (or coalitional) stability of the whole industry cartel is the equidistance of firms’ products along the quality spectrum. Without this property, and in presence of large quality differences, collusive agreements easily lose their stability. In addition, introducing a standard infinitely repeated-game approach, I show that an increase in the number of firms in the market may have contradictory effects on the incentive of firms to collude: it can make collusion easier for bottom and intermediate firms and harder for the top quality firm. Finally, by means of a three-firm example, I consider the case in which alliances can set endogenously qualities, prices and number of variants on sale. I show that, in every formed coalition, (i) market pruning dominates product proliferation and (ii) partial cartelisation always arises in equilibrium, with the bottom quality firm always belonging to the alliance.
    Keywords: Vertically Differentiated Market, Price Collusion, Product Pruning, Product Proliferation, Endogenous Qualities, Endogenous Alliance Formation, Coalition Structures, Grand Coalition, Coalition Stability, Core, Simultaneous and Sequential Game of Coalition Formation
    JEL: D42 D43 L1 L12 L13 L41
    Date: 2017–06

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