nep-bec New Economics Papers
on Business Economics
Issue of 2017‒10‒01
eight papers chosen by
Vasileios Bougioukos
Bangor University

  1. Merger Paradox in a Network Product Market: A Horizontally Differentiated Three-Firm Model By Tsuyoshi Toshimitsu
  2. "The Role of Firm Strategy to Intervene the Influence of Corporate Social Performance on Corporate Financial Performance" By Bayu Aprillianto
  3. A Matter of Trust? The Bond Market Benefits of Corporate Social Capital during the Financial Crisis By Amiraslani, Hami; Lins, Karl; Servaes, Henri; Tamayo, Ane
  4. The market for scoops: A dynamic approach By Ascensión Andina-Díaz; José A. García-Martínez; Antonio Parravano
  5. Allocating Effort and Talent in Professional Labor Markets By Gadi Barlevy; Derek Neal
  6. Competition between For-Profit and Industry Labels: The Case of Social Labels in the Coffee Market By Pio Baake; Helene Naegele
  7. Does the Adoption of Complex Software Impact Employment Composition and the Skill Content of Occupations? Evidence from Chilean Firms By Almeida, Rita K.; Fernandes, Ana Margarida; Viollaz, Mariana
  8. The Number of Bank Relationships and Bank Lending to New Firms: Evidence from firm-level data in Japan By OGANE Yuta

  1. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Using a horizontally differentiated three-firm model, we reconsider the merger paradox and externalities, i.e., the profitability of a merger, in a network product market where network externalities and compatibilities between products exists. Investigating the effect of a merger on the profits of the insider (participant) and outsider (nonparticipant) firms, we demonstrate the conditions under which the merger paradox and externalities arise in the network product market. If the degree of the merger-related network compatibility is sufficiently large, the merger paradox never arises.
    Keywords: merger paradox; network externality; compatibility; horizontal product differentiation; quantity-setting game
    JEL: D43 K21 L13 L14 L15
    Date: 2017–09
  2. By: Bayu Aprillianto (University of Jember, Indonesia Author-2-Name: Yosefa Sayekti Author-2-Workplace-Name: University of Jember, Indonesia)
    Abstract: "Objective – A Corporate Social Responsibility (CSR) implementation has been implemented since over 50 years ago. All of the CSR implementation divided into two categories, namely Strategic CSR and Non-Strategic CSR. A Strategic CSR implementation should consider the firm strategy based on the CSR concept and firm strategy. Some empirical studies have tested the influence of CSR on Corporate Financial Performance. The results of those studies are still inconclusive. Methodology/Technique – The purpose of this study is to analyze firm strategy as intervening variable between Corporate Social Performance and Corporate Financial Performance. This study used capital intensity and product differentiation to measure the firm strategy. The samples were 33 companies of LQ-45, listed in Indonesian Stock Exchange. Findings – The results did not indicate that firm strategy intervenes the influence of Corporate Social Performance on Corporate Financial Performance, both directly and indirectly. Novelty – The research suggests future studies to employ the other ratios representing Firm Strategy that will strengthen the literature."
    Keywords: "Corporate Financial Performance; Corporate Social Performance; Firm Strategy; Non-Strategic CSR; Strategic CSR."
    JEL: L25 M14 M41
    Date: 2017–07–17
  3. By: Amiraslani, Hami; Lins, Karl; Servaes, Henri; Tamayo, Ane
    Abstract: We investigate whether a firm's social capital, and the trust that it engenders, are viewed favorably by bondholders. Using the financial crisis as an exogenous shock to trust, and firms' corporate social responsibility (CSR) activities as a proxy for social capital, we show that high-CSR firms benefited from lower bond spreads in the secondary market during the financial crisis compared to low-CSR firms. These findings are more pronounced for firms that, when in distress, have a greater opportunity to engage in asset substitution or divert cash to shareholders. High-CSR firms were also able to raise more debt capital on the primary market during this period, and those high-CSR firms that raised more debt were able to do so at lower at-issue bond spreads, better initial credit ratings, and for longer maturities. Our results suggest that debt investors believe that high-CSR firms are less likely to engage in asset substitution and diversion that would be detrimental to stakeholders, including debtholders. These findings also indicate that the benefits of CSR that accrued to shareholders during the financial crisis carry across to another important asset class, debt capital.
    Keywords: corporate bonds; cost of debt; CSR; financial crisis; social capital; Trust
    JEL: G12 G21 G32 M14
    Date: 2017–09
  4. By: Ascensión Andina-Díaz (Department of Economics, University of Málaga); José A. García-Martínez (Department of Economics, University of Málaga); Antonio Parravano (Department of Economics, University of Málaga)
    Abstract: We present a dynamic model of competition and reputation in the media industry, in which firms compete for the publication of scoops and both the publication of scoops and their veracity determine a firm's future reputation. We study the dynamics of firms' reputations and how it relates to two issues: The consumers' preferences for information and the dispersion of the firms' editorial standards for quality. We obtain that in the case of a duopoly, there is only one stable steady state. In this equilibrium the two firms coexist and the identity of the firm that leads the market (i.e., whether it is the firm with the high editorial standard or with the low standard) depends on a combination of the two issues above. We then use numerical simulations to analyze the stochastic dynamics for a larger number of firms. We obtain that most of the insights gained for the duopoly case are robust to the consideration of a higher number of firms. We also draw predictions on the number of firms surviving in the long run, showing that the more severe consumers are with the publication of false stories and/or the more similar the firms' standards for quality are, the higher the number of firms in the stationary state.
    Keywords: Media industry; Competition; Reputation; Stochastic dynamics; Deterministic dynamics
    JEL: L10 L82
    Date: 2017–09
  5. By: Gadi Barlevy; Derek Neal
    Abstract: In many professional service firms, new associates work long hours while competing in up-or-out promotion contests. Our model explores why these firms require young professionals to take on heavy workloads while simultaneously facing significant risks of dismissal. We argue that the productivity of skilled partners in professional service firms (e.g. law, consulting, investment banking, and public accounting) is quite large relative to the productivity of their peers who are competent and experienced but not well-suited to the partner role. Therefore, these firms adopt personnel policies that facilitate the identification of new partners. In our model, both heavy workloads and up-or-out rules serve this purpose. Firms are able to identify more professionals who can function effectively as partners when they require new associates to perform more tasks. Further, when firms replace experienced associates with new workers, they gain the opportunity to identify talented professionals who will have long careers as partners. Both of these personnel practices are costly. However, when the gains from increasing the number of talented partners exceed these costs, firms employ both practices in tandem. We present evidence on life-cycle patterns of hours and earnings among lawyers that supports our claim that both heavy workloads and up-or-out rules are screening mechanisms.
    JEL: J01 J22 J44 M51
    Date: 2017–09
  6. By: Pio Baake; Helene Naegele
    Abstract: We model strategic interaction on a market where two labeling organizations compete and firms in duopoly decide which labels to offer. The incumbent label maximizes its own profit, and is challenged by an industry standard which maximizes industry profit. Using a nested logit, the result of this multi-stage game depends crucially on the degree of horizontal differentiation. Joint firm profit always increases with the introduction of the industry standard. The industry standard wants to segment the market and strategically distorts its label quality downwards, such that each firm specializes in a different label. Social welfare however increases with the number of labeled products. A policy imposing a minimum label quality is only binding in the case of strategic quality distortion by the industry standard.
    Keywords: Product differentiation, certification, nested logit
    JEL: L15 D43 L13
    Date: 2017
  7. By: Almeida, Rita K. (World Bank); Fernandes, Ana Margarida (World Bank); Viollaz, Mariana (CEDLAS-UNLP)
    Abstract: A major concern with the rapid spread of technology is that it replaces some jobs, displacing workers. However, technology may raise firm productivity, generating more jobs. The paper contributes to this debate by exploiting a novel panel data set for Chilean firms in all sectors between 2007 and 2013. While previous studies examine the impacts of automation on the use of routine tasks by middle-educated workers, this study focuses on a measure of complex software that is typically used by more educated workers in cognitive and nonroutine tasks for client, production, and business management. The instrumental variables estimates show that in the medium run, firms' adoption of complex software affects firms' employment decisions and the skill content of occupations. The adoption of complex software reallocates employment from skilled workers to administrative and unskilled production workers. This reallocation leads to an increase in the use of routine and manual tasks and a reduction in the use of abstract tasks within firms. Interestingly, the impacts tend to be concentrated in sectors with a less educated workforce, suggesting that technology can constrain job creation for the more skilled workers there. The paper concludes that the type of technology matters for understanding the impacts of technology adoption on the labor market.
    Keywords: complex software, tasks, skills, employment structure, Chile
    JEL: J23 J24 J31 O33
    Date: 2017–09
  8. By: OGANE Yuta
    Abstract: This paper examines how the number of bank relationships affects bank lending to new firms using a unique firm-level data set of more than 1,000 small and medium-sized enterprises (SMEs) incorporated in Japan between April 2003 and June 2008. We employ a two-stage least squares (2SLS) estimator—one of the instrumental variables estimators—to address the possible bias caused by omitted variables and/or reverse causality. We find that an increase in the number of bank relationships increases long-term lending to new firms. We also find that this rise may boost total lending to such firms. Furthermore, the findings in this paper suggest that the most significant difference in the effects of the number of bank relationships on bank lending is the difference between a single bank relationship and multiple bank relationships. We show that these results are unlikely to be driven by omitted variables and/or reverse causality.
    Date: 2017–09

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