nep-bec New Economics Papers
on Business Economics
Issue of 2017‒09‒10
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Dynamics of Inter-firm Networks and Firm Growth By FUJII Daisuke; SAITO Yukiko; SENGA Tatsuro
  2. Boosting firm dynamism and performance in China By Margit Molnar
  3. Prominence, Complexity, and Pricing By Chioveanu, Ioana
  4. Financial versus strategic bidders: Evidence from unsuccessful takeover bids By Magnus Blomkvist; Timo Korkeamäki
  5. Econophysics of Business Cycles: Aggregate Economic Fluctuations, Mean Risks and Mean Square Risks By Victor Olkhov
  6. Standards and Market Power: Evidence from Tunisia By Hendrik W. Kruse; Inma Martínez-Zarzoso; Leila Baghdadi
  7. Optimal Licensing of Technology in the Face of (Asymmetric) Competition By Cuihong Fan; Byoung Heon Jun; Elmar G. Wolfstetter
  8. Intangible Assets and the Organization of Global Supply Chains By S. Bolatto; A. Naghavi; G. Ottaviano; K. Zajc Kejzar
  9. Home Values and Firm Behaviour By Saleem Bahaj; Angus Foulis; Gabor Pinter
  10. Firm Capabilities, Technological Dynamism and Innovation Internationalisation – a Behavioural Approach By Schubert, Torben; Baier, Elisabeth; Rammer, Christian
  11. On the Degree of Scale Economies when Firms Make Technology Choice By Shintaku, Koji
  12. The Microeconomic Impact of Political Instability: Firm-Level Evidence from Tunisia By Samer Matta

  1. By: FUJII Daisuke; SAITO Yukiko; SENGA Tatsuro
    Abstract: Recent empirical evidence has revealed that firm age is one of the key determinants for firm growth, while other literature points out the importance of customer-supplier networks for firm growth. This paper investigates how the inter-firm transaction network evolves over the firm lifecycle and its relationship with firm growth using large-scale firm network data in Japan. Old firms are large in size and well connected compared to young firms. In particular, older firms are connected to other older firms exhibiting positive assortativity of age. Younger firms tend to add and drop links more frequently, and the stability of a transaction link increases with its duration of active relationships, implying gradual learning of link-specific productivity over time. Moreover, firm's sales growth is positively related with the expansion of transaction partners in various measures, conditional on firm age. This suggests that the observed relationship between firm age and firm growth may be due to the lifecycle pattern of building inter-firm networks.
    Date: 2017–08
  2. By: Margit Molnar
    Abstract: With persisting slower growth worldwide and in China, over-capacity in some heavy industry sectors, declining profitability, and intensifying competition from other, lower-cost emerging economies, corporate behaviour in China needs to change and focus more on efficiency and sustainability. This need is further intensified by mounting environmental pressures and China’s ambition for greener and more sustainable growth. A larger proportion of firms, including state-owned enterprises, should step up innovation efforts and improve corporate governance practices. To this end, supportive policies are needed, fostering an environment that is more conducive to innovation and entrepreneurship, and facilitating resource reallocation through the exit of unviable firms. At the same time, fraudulent corporate practices must be halted and State assets need to be better managed. Reforms are under way or envisaged that will help improve corporate performance and, more broadly, deliver more resilient and environmentally sustainable growth and continuing progress in living standards. This Working Paper relates to the 2017 OECD Economic Survey of China ( y-china.htm).
    Keywords: bankruptcy, business environment, corporate debt, corporate governance, entrepreneurship, industrial policy, Innovation, intellectual property rights, overcapacity, research and development, state-owned entreprise reform, zombie firms
    JEL: G34 G38 L26 L52 O3 P31
    Date: 2017–09–11
  3. By: Chioveanu, Ioana
    Abstract: This paper analyzes prominence in a homogeneous product market where two firms simultaneously choose both prices and price complexity levels. Complexity limits competing offers' comparability and results in consumer confusion. Confused consumers are more likely to buy from the prominent firm. In equilibrium there is dispersion in both prices and price complexity. The nature of equilibrium depends on prominence. Compared to its rival, the prominent firm makes higher profit, associates a smaller price range with lowest complexity, puts lower probability on lowest complexity, and sets a higher average price. However, higher prominence may benefit consumers and, conditional on choosing lowest complexity, the prominent firm's average price is lower, which is consistent with confused consumers' bias.
    Keywords: oligopoly markets, consumer confusion, prominence, price complexity, price dispersion
    JEL: D03 D43 L13
    Date: 2017–08–31
  4. By: Magnus Blomkvist (Audencia Business School); Timo Korkeamäki (Hanken School of Economics - Hanken School of Economics)
    Abstract: Even failed takeovers can identify undervalued target firms. We find that compared to financial bidders, strategic buyers have a greater lasting valuation effect on the targets. Strategic bidders thus appear to be superior in identifying undervalued targets. JEL Classification: G30, G32, G34
    Keywords: Mergers and Acquisitions,Corporate Investments
    Date: 2017
  5. By: Victor Olkhov
    Abstract: This paper presents hydrodynamic-like model of business cycles aggregate fluctuations of economic and financial variables. We model macroeconomics as ensemble of economic agents on economic space and agent's risk ratings play role of their coordinates. Sum of economic variables of agents with coordinate x define macroeconomic variables as functions of time and coordinates x. We describe evolution and interactions between macro variables on economic space by hydrodynamic-like equations. Integral of macro variables over economic space defines aggregate economic or financial variables as functions of time t only. Hydrodynamic-like equations define fluctuations of aggregate variables. Motion of agents from low risk to high risk area and back define the origin for repeated fluctuations of aggregate variables. Economic or financial variables on economic space may define statistical moments like mean risk, mean square risk and higher. Fluctuations of statistical moments describe phases of financial and economic cycles. As example we present a simple model relations between Assets and Revenue-on-Assets and derive hydrodynamic-like equations that describe evolution and interaction between these variables. Hydrodynamic-like equations permit derive systems of ordinary differential equations that describe fluctuations of aggregate Assets, Assets mean risks and Assets mean square risks. Our approach allows describe business cycle aggregate fluctuations induced by interactions between any number of economic or financial variables.
    Date: 2017–08
  6. By: Hendrik W. Kruse (University of Jordan); Inma Martínez-Zarzoso; Leila Baghdadi
    Abstract: We develop a theoretical model and derive conditions under which firms with market power try to influence the setting of quality standards and describe the political equilibrium. We show that in political equilibrium the positive association only holds for a restricted set of initial values of the firm’s market share, if the government ascribes a positive value to consumer welfare. We test our hypothesis using Tunisian data for the years 2002-2010. In our main results, we find a higher incidence of SPS measures in sectors where firms connected to former president Ben Ali have a higher share in imports. However, this association only holds for sectors with high tariffs. For low tariff sectors, we find that Ben Ali firms are associated with more TBTs. A higher concentration of market power in itself does not lead to higher standards, leading us to the conclusion that political power is essential.
    Date: 2017–08–24
  7. By: Cuihong Fan (Shanghai University of Finance and Economics); Byoung Heon Jun (Department of Economics, Korea University, Seoul, Republic of Korea); Elmar G. Wolfstetter (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: We reconsider the optimal licensing of technology by an incumbent firm in the presence of multiple potential licensees. In a first step we show that competition among potential licensees has a drastic effect on optimal two-part tariff contracts. We then introduce more general mechanisms and design a dynamic mechanism that extracts the maximum industry profit while reducing the potential licensees' payoff to the minimum level that they can assure themselves. That mechanism can be viewed as a generalized "chutzpah" mechanism, generalized because it employs royalties to maximize the industry profit. It awards licenses to all firms and prescribes maximum permitted royalty rates plus positive fixed fees.
    Keywords: Patent licensing, innovation, optimal contracts, dynamic mechanisms.
    JEL: D21 D43 D44 D45
    Date: 2017
  8. By: S. Bolatto; A. Naghavi; G. Ottaviano; K. Zajc Kejzar
    Abstract: This paper introduces the concept of intangible assets in sequential supply chains and the importance of their appropriability in the organizational decision of firms. We focus on the quality of intellectual property rights (IPR) institutions, which on top of the hold-up problem between a supplier and the final producer entails an additional risk of imitation as technology may leak to competing producers in the market. The level of IPR enforcement in the location of a supplier can therefore play a crucial role in determining the decision of a final good producer whether to outsource or integrate a particular stage of production. The analysis is performed with Antràs and Chor (2013) in the background, where the position of the input along the supply chain, i.e. its upstreamness, and the degree of sequential complementarity of stage-specific inputs influence the organizational strategy of firms through the incentive structure of supplier investments. Our findings show that introducing intangible assets in sequential supply chain may have the opposite effect of contractibility on outsourcing decision, where only tangible property rights are considered. We argue therefore that the risk of imitation is a relevant feature that needs to be accounted for in the incomplete contract literature. Our theoretical predictions are validated on Slovenian firm-level data.
    JEL: F12 F14 F21 F23 D23 L22 L23 L24 O34
    Date: 2017–08
  9. By: Saleem Bahaj (Bank of England; Centre for Macroeconomics (CFM)); Angus Foulis (Bank of England; Centre for Macroeconomics (CFM)); Gabor Pinter (Bank of England; Centre for Macroeconomics (CFM))
    Abstract: The homes of those in charge of firms are an important source of finance for ongoing businesses. We use firm level accounting data, transaction level house price data and loan level residential mortgage data from the UK to show that a £1 increase in the value of the residential real estate of a firm’s directors increases the firm’s investment and wage bill by £0.03 each. These effects run through smaller firms and are similar in booms and busts. In aggregate, the homes of firm directors are worth 80% of GDP. Using this, a back of the envelope calculation suggests that a 1% increase in real estate prices leads, through this channel, to up to a 0.28% rise in business investment and a 0.08% rise in total wages paid. We complement this with evidence on how a firm responds to changes in the value of its own corporate real estate; we find that, in aggregate, the residential real estate of directors is at least as important for activity. We use an estimated general equilibrium model to quantify the importance of both types of real estate for the propagation of shocks to the macroeconomy.
    JEL: D22 E32 R30
    Date: 2017–08
  10. By: Schubert, Torben (CIRCLE, Lund University); Baier, Elisabeth (HWTK, Baden-Baden); Rammer, Christian (ZEW, Mannheim)
    Abstract: We develop a behavioural framework of bounded rational decision-making under uncertainty by which we analyse the effect of technological dynamism in the firm’s environment on its decisions to internationalise innovation. Arguing that the firm’s technological performance lev-el affects its risk-preferences, a key-prediction is that firms with low technological compe-tences will internationalise innovation when faced by technological uncertainty while firms with high competences will withdraw from international innovation. A fully rational absorptive-capacity framework would predict the opposite relationship because it ignores the role of dif-ferential risk-preferences. We test our framework using data from the German Community Innovation Survey (CIS).
    Keywords: innovation internationalisation; speed of technological change; bounded rationality; prospect theory; uncertainty; technological capabilities
    JEL: F21 F23 L22 O32
    Date: 2017–09–01
  11. By: Shintaku, Koji
    Abstract: We construct a simple model to demonstrate how the firm-level degree of scale economies (D-SE) is determined when firms make technology choice. In particular, we illustrate the importance of external factors that affect the efficiency of firms' technology choice, such as public knowledge stock, when determining D-SE. A change in public knowledge stock affects D-SE both directly and indirectly through a change in the firm's output. When output is endogenized in a monopolistic competition model with a variable mark-up rate, an increase in public knowledge stock raises D-SE through technology choice if the mark-up rate is increasing in output.
    Keywords: Degree of scale economies; Technology choice; Public knowledge stock; Variable mark-up rate.
    JEL: D21 D24 F10 F12 L11 L16
    Date: 2017–09–06
  12. By: Samer Matta (University of Nottingham)
    Abstract: This paper explores the impact of political instability on firms. The context of this paper is Tunisia, a country that saw a surge in political instability events after the 2011 Jasmine revolution. Using a new dataset, we show that political instability was a major concern for small and exporting firms as well as for those that were operating in the tourism sector, those that have suffered from vandalism and those that were located in the interior region of Tunisia. Most importantly, we find that political instability was the most damaging constraint to firm growth after the Arab Spring.
    Date: 2017–07–09

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