nep-bec New Economics Papers
on Business Economics
Issue of 2017‒07‒16
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Causal Impact of Social Connections on Firms' Outcomes By Eliason, Marcus; Hensvik, Lena; Kramarz, Francis; Nordstrom Skans, Oskar
  2. Firm dynamics in developing countries: a single policy for all regions? By Calá, Carla Daniela
  3. The Knowledge Spillover Theory of Intrapreneurship, Labour Mobility and Innovation by Firm Size By Braunerhjelm, Pontus; Ding, Ding; Thulin, Per
  4. Exporter Heterogeneity and Price Discrimination: A Quantitative View By Ina Simonovska; ARIEL WEINBERGER; Jae Wook Jung
  5. Public Firm in Mixed Oligopolistic Structure: A Theoretical Exposition By Chatterjee, Susmita; Chattopadhyay, Srobonti; Chatterjee, Rittwik; Dutta, Debabrata
  6. Network preferences and the growth of the British cotton textile industry, c.1780-1914 By Toms, Steven
  7. Reputation building and the lifecycle model of dividends By Tom Flavin; Tom O'Connor
  8. Occupational Choice and Matching in the Labor Market By Aloysius Siow; Eric Mak
  9. Collusive Vertical Relations By S. Bolatto; L. Lambertini
  10. Active labour market policies and short-time work arrangements: Evidence from a survey of Luxembourg firms By Konstantinos Efstathiou; Thomas Y. Mathä; Cindy Veiga; Ladislav Wintr
  11. Co-operation in Production, the Organization of Industry & Productive Systems: A Critical Survey of the 'District' Form of Industrial Organisation & Development By Sue Konzelmann; Frank Wilkinson
  12. Efficiency versus transaction costs in multidimensional auctions: the case of Brazilian oil and gas lease auctions By Miguel Vazquez; Michelle Hallack
  13. Labour market adjustment in Europe during the crisis: microeconomic evidence from the Wage Dynamics Network survey. By Mario Izquierdo; Juan Francisco Jimeno; Theodora Kosma; Ana Lamo; Stephen Millard; Tairi Rõõm; Eliana Viviano
  14. The influence of the concentration on the performance of firms in retail industry in the Republic of Croatia By Ivan Kristek; Mladen Pancić; Hrvoje Serdarušić
  15. Quantifying the Coordinated Effects of Partial Horizontal Acquisitions By Duarte Brito; Ricardo Ribeiro; Helder Vasconcelos

  1. By: Eliason, Marcus; Hensvik, Lena; Kramarz, Francis; Nordstrom Skans, Oskar
    Abstract: The paper studies how social connections affect firm-level hiring decisions and performance. We use register data to characterize the social connections of firms' employees. For causal identification, we use displacements which create directed supply shocks towards the firms of the displaced workers' social connections. We make sure that our results are fully driven by these directed supply shocks. Results show that firms appear to prefer employed workers they are connected to over unconnected or unemployed workers when hiring. The employed and connected mostly go to high-productivity firms whereas the unemployed and unconnected tend to go to low-productivity firms. Strong connections - family, recent, durable, formed in small groups, between socially similar agents - matter the most. Displacements shocks cause connected firms, in particular low-productivity ones, to hire those workers they are connected to. Unconnected hires and separations are essentially unaffected. These supply shocks therefore cause the creation of additional jobs which increase firms' employment. In addition, we use these shocks to show that hiring connected workers has a positive causal impact on firm performance. These results are consistent with a stylized framework where connections reduce hiring frictions and where the firm-level possibility to hire connected workers is a function of changing outside options of these workers.
    Keywords: job creation; Job Displacement; job search; networks
    JEL: J23 J30 J60
    Date: 2017–07
  2. By: Calá, Carla Daniela
    Abstract: We analyse the determinants of firm dynamics in developing countries using Argentina as an illustrative case. We explain firm entry and exit at the regional level, distinguishing three groups of manufacturing activities: low, medium and high tech. We find that both region- and sector- specific determinants explain firm dynamics, but the impact is not homogeneous across the sectors considered. In particular, for low tech industries, there is a need for explanatory variables that proxy for the specificities of developing economies (e.g., poverty, informal economy and idle capacity). We also find evidence of a core-periphery pattern according to which agglomeration economies and previous entries and exits have different effects in core and peripheral regions. These results are relevant for policy makers in developing countries, who should take into account not only the specificities of such economies, but also the regional heterogeneity both in terms of the level of development and industrial composition within the country .
    Keywords: Dinámica Empresarial; Creación de Empresas; Cese de Actividad; Relación Centro-Periferia; Economía Regional; Argentina;
    Date: 2015–12
  3. By: Braunerhjelm, Pontus (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Ding, Ding (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Thulin, Per (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Presenting The Knowledge Spillover Theory of Intrapreneurship, we examine how labour mobility impacts innovation distributed on firm size. A matched employer-employee dataset, pooled with firm-level patent application data, is implemented in the analysis. We provide new evidence that knowledge workers’ mobility has a positive and strongly significant impact on all firms’ innovation output, measured as patent applications. The patterns and effects differ between large and small firms. More precisely, for small firms, intraregional mobility of knowledge workers that have previously worked in a patenting firm (the learning-by-hiring effect) are shown to be statistically and economically highly significant, whereas only limited impact could be detected for firms losing knowledge workers (the-learning-by-diaspora effect).
    Keywords: Labour mobility; knowledge diffusion; innovation; social networks
    JEL: J24 O31 R23
    Date: 2017–07–13
  4. By: Ina Simonovska (UC Davis); ARIEL WEINBERGER (University of Oklahoma); Jae Wook Jung (Korea Institute for International Economic Policy)
    Abstract: We quantify a class of commonly-employed general equilibrium models of international trade and pricing-to-market that feature firm-level heterogeneity and consumers with non-homothetic preferences. We demonstrate theoretically that the models lack the flexibility to match salient features of US firm-level data. Consequently, we outline a theoretical framework that can reconcile the documented price dispersion across firms and markets, while maintaining consistency with cross-sectional observations on firm productivity and sales. We calibrate the model's parameters to match bilateral trade flows across 71 countries as well as the productivity and sales advantages of US exporters over non-exporters. We find that the calibrated model accounts for the majority of the dispersion in prices of tradables across countries of different income levels, while maintaining a tight quantitative fit to firm-level data. Given its additional flexibility, the model quantitatively outperforms the existing alternatives and yields welfare gains for the US that are 14-54% higher, but at the cost of loss of tractability.
    Date: 2017
  5. By: Chatterjee, Susmita; Chattopadhyay, Srobonti; Chatterjee, Rittwik; Dutta, Debabrata
    Abstract: The logic for state monopoly of public utilities arises from increasing returns to scale and the concern that private business in these areas results in monopolistic exploitation of consumers. The state monopoly however is fraught with the danger of production inefficiency. In this backdrop, the market form of mixed oligopoly is contemplated in markets like health, education, electricity, gas, telecommunications etc, where public and private sector coexists. The private firms maximize profit but the public firm maximizes social welfare. Despite this theoretical exposition, it is often observed that public firms fail to make contributions according to their potentiality. The public firm in an industry with rapid change in technology can perform inefficiently due to decision making delay, adherence to social obligation. The policy makers must rise to these occasions then survival of public firms will be smooth. The option of public private partnership also derives affirmative results for the society and the particular industry per se.
    Keywords: Public Firm, Public Private Partnership, Mixed Oligopoly
    JEL: H44 L13
    Date: 2017–04–04
  6. By: Toms, Steven
    Abstract: The paper considers the dual aspect of social networks in terms of 1) product innovators and developers and 2) the providers of finance. The growth of networks can be explained as a function of incumbents and entrants’ preferences to link with specific nodes defined according to the underlying duality. Such preferences can be used to explain network evolution and growth dynamics in the cotton textile industry, from being the first sector to develop in the industrial revolution through to its maturity. The network preference approach potentially explains several features of the long run industry life cycle: 1. The early combination of innovators with access to extensive credit networks, protected by entry barriers determined by pre-existing network structures, leading to lower capital costs for incumbents and rapid productivity growth, c.1780-1830. 2. The spread of innovation and productivity through value chain linkages during the nineteenth century. 3. The trust movement, joint stock and personal capitalism: the emergence of large firms and a preference for regional financial markets in Lancashire and Scotland. 4. The consolidation of regional instead of national business groups which help explain the decline of the industry. The paper uses case studies of firms, networks, and market institutions based on a mixture of archival evidence, drawn mainly from the financial records of a large sample of cotton firms, and contemporary publications. It stresses human interactions (as opposed to population ecology mechanisms) as determinants of the character, scale and scope of network evolution. Intergenerational features of the networks are identified and classified by these characteristics. Networks were typically bounded in terms of product innovators and less bounded in terms of finance providers. Consequently, finance providers tend to provide the impetus for the rate of network growth in expansion, maturity and contraction phases.
    Keywords: Business networks, British cotton textile industry, innovation, finance, regions, entrepreneurship, mergers.
    JEL: L14 L26 N23 N83 O33
    Date: 2017–07–06
  7. By: Tom Flavin (Department of Economics, Finance and Accounting, Maynooth University.); Tom O'Connor (Department of Economics, Finance and Accounting, Maynooth University.)
    Abstract: We analyse the relationship between corporate dividend policy and firm lifecycle in a low-disclosure regime, where domestic firms have an incentive to use dividends to build capital market reputation among external investors. We use a range of lifecycle indicators from the extant literature and find that, as predicted by the lifecycle model, dividend payouts increase along the lifecycle until peaking in the mature stage. Furthermore, dividends are positively related to growth opportunities. In all lifecycle stages, firms with relatively larger growth opportunities pay relatively larger dividends. We find that firms in low-disclosure regimes, engage in reputation-building behaviour, not just in the early stages of their lifecycle but also in the mature stage.
    Date: 2017
  8. By: Aloysius Siow (University of Toronto); Eric Mak (Shanghai University of Finance and Economics)
    Abstract: Every labor market have many occupations. Within most occupation, the distribution of earnings is single peaked and right skewed. Firm and establishment effects have large explanatory power in log earnings regressions. Within several countries, most of the recent changes in earnings inequality are due to changes in earnings inequality across firms and not within firms. The paper investigates a model of team production consistent with these findings. Workers differ by cognitive and non-cognitive skills. The labor market sorts workers into different teams and roles within teams. The model integrates the Roy model of occupational choice with Becker’s model of positive assortative matching. We use the model to quantitatively evaluate the role of increased educational attainment in reducing recent earnings inequality in Brazil.
    Date: 2017
  9. By: S. Bolatto; L. Lambertini
    Abstract: We investigate the possibility for two vertically related firms to at least partially collude on the wholesale price over an infinite horizon to mitigate or eliminate the effects of double marginalisation, thereby avoiding contracts which might not be enforceable. We characterise alternative scenarios envisaging different deviations by the upstream firm and different punishments. This allows us to show that the most efficient case is that in which the upstream firm deviates along its best reply function and the punishment prescribes the disruption of the vertical relation for good after a deviation from the collusive path.
    JEL: D43 L13 L42
    Date: 2017–06
  10. By: Konstantinos Efstathiou; Thomas Y. Mathä; Cindy Veiga; Ladislav Wintr
    Abstract: We analyse the use of active labour market policy (ALMP) measures and short-time work arrangements (STWAs) by Luxembourg firms during the years of economic and financial crisis (2008-09) and the subsequent European sovereign debt crisis (2010-13). About 34% of Luxembourg firms used ALMPs between 2008 and 2013. Economy-wide, use of ALMPs increased along both the extensive margin (more firms) and the intensive margin (more measures per firm). The likelihood that a firm hired with recourse to ALMPs is greater for large, domestically oriented, multiple establishment firms, firms facing strong demand, with concerns about labour cost pressures and unavailability of skilled labour. The crisis saw a surge in firms using STWAs. The likelihood of applying for STWAs increases with demand volatility, the share of workers with permanent contracts, export orientation and the inability to shift workers between establishments. Firms reported that 20-25% of jobs in STWAs were saved by this measure.
    Keywords: Firms, survey, crisis, active labour market policy, short-time work arrangements
    JEL: C25 J63 J68
    Date: 2017–06
  11. By: Sue Konzelmann; Frank Wilkinson
    Abstract: Liberal economics has traditionally put strong emphasis on individualisation and specialisation – and has struggled with the notion of co-operation. Thus, Alfred Marshall's pioneering work on the English industrial districts of his day posed a significant challenge to the conventional wisdom, which embraced laissez-faire markets and Adam Smith's claim that improvements in efficiency depend upon the increased division of labour within firms competing in them. Marshall found that an important determinant of the competitive success of industrial districts was effective co-operation within and between firms, supported by a dense network of institutions, and markets regulated by agreed rules, norms and standards. He theorised that these generate external economies of scale and scope that enable the district and its constituent small firms to successfully compete with large, vertically integrated firms. From the mid-1920s, however, with the emergence and growth of very large, highly successful firms, the conventional wisdom shifted to suppose that the historical tendency in capitalist development was towards large firm dominance; and the small firm sector was progressively reduced to a residuum. However, the rediscovery of the industrial district by Italian scholars during the 1960s revived interest in Marshall's notion of localised productive systems and attracted considerable attention to this form of industrial organisation. This paper traces themes within this literature, from the earliest theorising by the Classical Political Economists to the present, focusing on the role of co-operation in production, the relationship between the organisation of production and markets, and the nature and functioning of productive systems.
    Keywords: Industrial Districts, Productive Systems, Co-operation and Competition, Industrial Organisation
    JEL: B00 L00
    Date: 2016–09
  12. By: Miguel Vazquez; Michelle Hallack
    Abstract: In Brazil, a scoring auction decides which firm has the right to explore oil and gas in a region. One of its dimensions is the amount of local content that firms are willing to implement. However, local content programs are subject to significant uncertainty and complexity so mal-adaptation costs are relevant. We characterize players’ bidding behavior when they have information on local content implementation and when they do not. We test those predictions using historical bids. Our tests suggest that the mechanism would be more efficient if the definition of local content programs was left out of the auction.
    Keywords: Local content; Scoring auctions; Adaptation costs; Oil and gas industry.
    JEL: D23 D82 H57 L14 L22 L74
    Date: 2017
  13. By: Mario Izquierdo (Banco de España); Juan Francisco Jimeno (Banco de España); Theodora Kosma (Bank of greece); Ana Lamo (European Central Bank); Stephen Millard (Bank of England); Tairi Rõõm (Eestipank); Eliana Viviano (Banca D’Italia)
    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.
    Keywords: Wage Dynamics Network, Survey data, Labour market adjustment, Labour market reforms.
    JEL: E24 J30 J52 J68
    Date: 2017–07
  14. By: Ivan Kristek (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku); Mladen Pancić (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku); Hrvoje Serdarušić (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku)
    Abstract: According to SCP paradigm (Structure-Conduct-Performance paradigm) the industry structure affects the behavior of firms in the industry, which affects their performance. The paradigm is consistent with the Neoclassical Theory of the Firm which assumes that there is a direct link between the industry structure, entrepreneurial conduct and performance. The basic principle of this paradigm might be the ability of entrepreneurs to exercise market power in a concentrated industry. High industry concentration is correlated with high profits, especially if the concentration level exceeds a certain critical level under the condition that there are some barriers to entry of new entrepreneurs in the industry. Economic theory supports the view that the industry concentration is in a positive relationship with efficiency, and it can be argued that the growth of industry concentration will increase the efficiency of industry. Current approaches in economic theory and recent empirical studies do not follow the SCP theory, they suggest that the above-average profits, which occur in most concentrated industry’s, are results of economic efficiency and effectiveness, and not a consequence of non-competitive behavior. In this paper we will try to give an answer to the above-mentioned issue present in economic theory. The study will try to demonstrate a statistically significant link between the measure of concentration and measure of efficiency in retail industry in the Republic of Croatia.
    Keywords: SCP, concentration, efficiency, retail industry
    JEL: D22 L11 L25 L81
    Date: 2017–04–05
  15. By: Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia | Universidade de Évora, CEFAGE-UE); Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School); Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and Center for Economics and Finance)
    Abstract: Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to quantify the coordinated effects of such acquisitions on differentiated products industries, by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained. The methodology can deal with settings involving all type of owners and ownership rights: owners that can be internal to the industry (rival firms) and external to the industry; and ownership rights that can involve financial interests and corporate control, can be direct and indirect, can be partial or full. We provide an empirical application of our proposed methodology to several acquisitions in the wet shaving industry. The results seem to suggest that the incentives of (i) the acquiring party’s firm to coordinate are non-decreasing after an acquisition (independently of whether it involves full or partial financial or corporate control rights, by internal or external owners), (ii) the acquired firm to coordinate are non-decreasing after acquisitions involving full or partial corporate control rights, but non-increasing after acquisitions involving full or partial financial rights, and (iii) the remaining firms in the industry to coordinate are non-increasing after an acquisition (again, independently of whether it involves full or partial financial or corporate control rights, by internal or external owners).
    Keywords: Antitrust, Coordinated Effects, Partial Acquisitions, Oligopoly, Differentiated Products, Demand Estimation
    JEL: D12 C54 L13 L41 L66
    Date: 2017–07

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