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on Business Economics |
| By: | Jose Maria Barrero (Stanford University) |
| Abstract: | A key question regarding firms' performance is how their perceptions and beliefs about the future impact their behavior. I use novel data on US firms' subjective beliefs to study whether they exhibit overoptimism (i.e. their expectations exceed rational forecasts) and overconfidence (i.e. they underestimate the variance across potential outcomes) in their perceptions of future sales growth. I document that US firms are overoptimistic, overestimating future sales growth by 2 to 5 percentage points, and also overconfident, underestimating the uncertainty about future sales by about 70 percent. I then study the quantitative implications of distorted subjective beliefs in a model of firm dynamics with investment subject to rich adjustment costs, and calibrate the model to match the degree of overconfidence and overoptimism observed in the data. Overoptimistic firms in the model expect better conditions in the future, leading them to have lower exit rates and lower profitability on average; by contrast, overconfident firms perceive less uncertainty about the future, leading them to exit quickly in the face of bad shocks and to grow disproportionately large in the face of good ones. Preliminary quantitative results also suggest that overconfidence rather than overoptimism is the more significant of the two distortions in terms of its effects on firm dynamics. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:367&r=bec |
| By: | Cihan Artunc (University of Arizona); Timothy Guinnane (Economic Growth Center, Yale University) |
| Abstract: | The relationship between legal forms of firm organization and economic development remains poorly understood. Recent research disputes the view that the joint-stock corporation played a crucial role in historical economic development, but retains the view that the costless firm dissolution implicit in non-corporate forms is detrimental to investment. We demonstrate the benefits of costless dissolution in an environment where potential business partners are not fully-informed. Using a multi-armed bandit model, we show that an experimentation mechanism creates a spike in dissolution rates early in firms’ lives, as less productive matches break down and agents look for better matches. We test the model’s predictions using a novel firm-level dataset comprising more than 12,000 enterprises established in Egypt between 1910 and 1949. Most partnerships dissolved within two years; afterwards, the risk of dissolution dropped to a lower, steady level. Corporations had much more uniform and lower attrition rates. Companies made up of partners who had been in business before also had flatter dissolution rates, confirming the link between learning and the early break-up of partnerships. The partnership reflected a trade-off between committing to a partner and sorting into potentially better matches. |
| Keywords: | firm longevity, multi-armed bandits, business enterprise forms |
| JEL: | D21 D22 N15 O16 L26 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1057&r=bec |
| By: | Luciano Fanti; Marcella Scrimitore |
| Abstract: | In a market in which a vertically integrated producer (VIP) also supplies an essential input to a retail rival, we explore the role of managerial delegation when it shapes downstream firms' incentives and determine the endogenous choice of delegation under both Cournot and Bertrand. The equilibrium choice of acting as a managerial firm, which is a standard result in literature of strategic delegation, is shown to be robust to the presence of a VIP in both the quantity competition and the price competition framework, regardless of the degree of product differentiation. The paper, however, highlights the different motives pushing the integrated firm and the independent retailer towards delegation, which also revert the standard result that delegation causes a prisoner's dilemma-type equilibrium under Cournot and a more profitable outcome under Bertrand. This result sheds new light on the role and implications of the managerial delegation in the real-world market structures. |
| Keywords: | Strategic delegation, outsourcing, Cournot competition, Bertrand competition, vertical integration. |
| JEL: | D43 L13 L21 |
| Date: | 2017–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2017/219&r=bec |
| By: | Ichiro Iwasaki (Institute of Economic Research, Hitotsubashi University); Evžen Kočenda |
| Abstract: | We use a total of 1171 estimates extracted from 34 previous studies and perform a meta-analysis to examine the relationship between ownership structures and firm performance in the Czech mass-privatized firms. We find that, in contrast to the remarkable effect of foreign ownership on firm performance and restructuring activities, domestic private entities were incapable of outperforming the state as owners of Czech companies. Our assessment of publication selection bias, however, indicates that the collected estimates do not contain genuine evidence for many types of corporate ownership. Further development and improvement in this study area are necessary to capture the true effect. Finally, we also point at the importance to draw (metaanalysis) inferences based on studies that employ adequate methodology. |
| Keywords: | voucher privatization, ownership structure, firm performance and restructuring, meta-analysis, publication selection bias, Czech Republic |
| JEL: | D22 G32 H32 O16 P31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:ost:wpaper:367&r=bec |
| By: | Gabszewicz, Jean; Marini, Marco A.; Tarola, Ornella |
| Abstract: | We prove that a sufficient condition for the core existence in a n-firm vertically differentiated market is that the qualities of firms' products are equispaced along the quality spectrum. This result contributes to see that a fully collusive agreement among firms in such markets is more easily reachable when product qualities are not distributed too asymmetrically along the quality ladder. |
| Keywords: | Vertically Differentiated Markets; Price Collusion; Core; Grand Coalition; Coalition Stability; Games with Externalities; Partition Function Games. |
| JEL: | C7 C71 D21 D4 L1 L13 |
| Date: | 2016–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80426&r=bec |
| By: | Luciano Fanti; Marcella Scrimitore |
| Abstract: | This paper reconsiders the issue of the endogenous choice of delegation in a market in which a vertically integrated producer (VIP) sells an input to a downstream competitor. The choice of whether to hire a manager or not is made at a preplay stage of a game developed by assuming that, within managerial firms, owners provide their managers with incentives affecting both the VIP's decision regarding the input price and retail competition. Our findings rule out that both the symmetric choices of being managerial or entrepreneurial can be implemented in equilibrium when firms compete à la Cournot, which contrasts with previous literature. The paper brings into focus the role of product differentiation in delivering asymmetric equilibria as solutions of the endogenous delegation game. |
| Keywords: | Managerial delegation, duopoly, vertically integrated firm. |
| JEL: | D43 L13 L21 |
| Date: | 2017–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2017/220&r=bec |
| By: | Conti, Chiara; Marini, Marco A. |
| Abstract: | This paper focusseses on the strategic use of firms' R&D agreements to overcome R&D inefficiencies in presence of asymmetric information and research spillovers. We introduce a duopoly game where initially one firm is not fully informed on its rival's R&D productivity. We show that, without R&D agreements, the usual underinvestment problem can be exacerbated by the presence of asymmetric information. However, by proposing a R&D agreement, the uninformed firm may not only gain from the internalization of R&D investment spillovers, but also use it strategically as a screening device to assess the true type of its rival. According to the model, firms are more likely to pursuit R&D agreements in presence of similar productivity and less when their productivity gap is high. This is consistent with the empirical findings highlighting the importance of firms' similarities for R&D collaborations. |
| Keywords: | Asymmetric Information; Screening; Duopoly; R&D investments; R&D Spillovers; R&D agreements. |
| JEL: | D43 D8 D82 L00 L13 L19 |
| Date: | 2017–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80423&r=bec |
| By: | Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean |
| Abstract: | This paper investigates the role of individual firms in international business cycle comovement using data covering the universe of French firm-level value added and international linkages over 1993-2007. At the micro level, trade and multinational linkages with a particular foreign country are associated with a significantly higher correlation between a firm and that foreign country. The impact of direct linkages on comovement at the micro level has significant macro implications. Without those linkages the correlation between France and foreign countries would fall by about 0.098, or one-third of the observed average correlation of 0.291 in our sample of partner countries. |
| Keywords: | comovement, international trade, firm-level shocks, large firms |
| JEL: | F44 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:981&r=bec |
| By: | Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean |
| Abstract: | This paper investigates the role of individual firms in international business cycle comovement using data covering the universe of French firm-level value added and international linkages over 1993-2007. At the micro level, trade and multinational linkages with a particular foreign country are associated with a significantly higher correlation between a firm and that foreign country. The impact of direct linkages on comovement at the micro level has significant macro implications. Without those linkages the correlation between France and foreign countries would fall by about 0.098, or one-third of the observed average correlation of 0.291 in our sample of partner countries. |
| Keywords: | Comovement, international trade, firm-level shocks, large firms |
| JEL: | F44 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1574&r=bec |
| By: | Sofie Cabus (Maastricht University); Eszter Nagy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and ELTE University) |
| Abstract: | Hungarian legislation provides firms with financial incentives to train apprentices from vocational training schools. In line with these incentives, it is observed that firms increasingly train apprentices over the period 2003-2011, in particular, in the sectors manufacturing, construction, wholesale and retail and hotels and restaurants. However, at the same time, it is observed that firms decreasingly retain the trained apprentices in these four sectors. This finding leads to the hypothesis that apprentices are not profitable in the long run. The formulated hypothesis is known in the previous literature as the ‘substitution strategy’. This recruiting strategy is particularly observed among firms that replace their low-skilled labour with apprentices in order to reduce the cost of wages. For these firms it is not beneficial to hire an apprentice after accomplishing his training, because then he becomes a low-skilled worker paid at higher wages. This paper investigates the effect of the share of days worked by apprentices on productivity and gross profits of Hungarian firms by using a unique matched employer-employee dataset. Different approaches that allow us to estimate the effect are discussed among which fixed effects first-difference models and system GMM. The results indicate that apprentices decrease productivity and gross profits of Hungarian firms. These negative effects on firm performance were more prominent and robust before (2003-2007) than after the financial crisis (2008-2011). |
| Keywords: | apprenticeship training, firm performance, panel data |
| JEL: | I21 J24 L25 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:has:bworkp:1706&r=bec |
| By: | Ingmar Nyman (Hunter College); Devra L. Golbe (Hunter College) |
| Abstract: | When a firm repurchases shares, does the equity stake of its CEO change? To answer this question, we study a sample of 1200 publicly-traded US firms between 2006 and 2014. Because of the distribution of CEO ownership, we employ a multinomial logit model. We address the potential endogeneity of share repurchases in the model with a control-function approach. The analysis suggests that CEOs tend not to change their equity holdings in a share repurchase, but that the decrease in shares outstanding increases the fraction of the firm that they own. This, in turn, is likely to influence the firm’s decision-making and efficiency. Market undervaluation does not appear to induce the CEO to buy shares herself, but there is evidence that it does induce the firm to repurchase more shares. |
| Keywords: | Share repurchases, Inside ownership, corporate governance, informed trading |
| JEL: | G30 G32 G35 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:htr:hcecon:448&r=bec |
| By: | Daniel Paravisini; Veronica Rappoport; Philipp Schnabl |
| Abstract: | We develop an empirical approach for identifying specialization in bank lending using granular data on borrower activities. We illustrate the approach by characterizing bank specialization by export market, combining bank, loan, and export data for all firms in Peru. We find that all banks specialize in at least one export market, that specialization affects a firm's choice of new lenders and how to finance exports, and that credit supply shocks disproportionately affect a firm's exports to markets where the lender specializes in. Thus, bank market-specific specialization makes credit difficult to substitute, with consequences for competition in credit markets and the transmission of credit shocks to the economy. |
| Keywords: | banking, export finance, specialization |
| JEL: | F14 F34 G21 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1492&r=bec |