nep-bec New Economics Papers
on Business Economics
Issue of 2017‒10‒22
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Quality and Gravity in International Trade By Unger, Florian; Flach, Lisandra
  2. Firm-level Human Capital and Innovation: Evidence from China By Xiuli Sun; Haizheng Li; Vivek Ghosal
  3. Globalization and State Capitalism: Assessing Vietnam's Accession to the WTO By Leonardo Baccini; Giammario Impullitti; Edmund J. Malesky
  4. Why Firms Should Care for All Consumers By Planer-Friedrich, Lisa; Sahm, Marco
  5. Blockbuster or Niche? Competitive Strategy under Network Effects By Yinbo Feng; Ming Hu
  6. Entry Barriers and Technological Innovation in Broadband By Tedi Skiti
  7. Processing Immigration Shocks: Firm Responses on the Innovation Margin By Rowena Gray; Giulia Montresor; Greg C. Wright
  8. Does the Investment Model Explain Value and Momentum Simultaneously? By Andrei S. Gonçalves; Chen Xue; Lu Zhang
  9. Competitive Pressure from Neighboring Markets and Optimal Privatization Policy By Haraguchi, Junichi; Matsumura, Toshihiro; Yoshida, Shohei
  10. Assessing the Determinants of Customs-Related Transaction Costs in Turkey By Halit Yanikkaya; Zeynep Aktas Koral
  11. Effects of Top Management Team Characteristics on Corporate Charitable Activities: Evidence from the Board for Small and Medium-sized Enterprises in China By Xin Huang; Koichi Nakagawa; Jie Li
  12. Regional Quality and Impaired Firms: Evidence from Italy By De Martiis, Angela; Fidrmuc, Jarko

  1. By: Unger, Florian; Flach, Lisandra
    Abstract: We show that the effect of fixed costs on international trade is lower in industries with a high degree of vertical product differentiation. We extend an international trade model by endogenous quality investmetns and use both aggregate trade data and firm-level data to estimate gravity equations of exports. Accounting for quality lowers the positive gains from trade and leads to more heterogeneous effects across industries compared to a trade model without quality.
    JEL: F12 F14 L11
    Date: 2017
  2. By: Xiuli Sun; Haizheng Li; Vivek Ghosal
    Abstract: Understanding the factors that may produce a sustained rate of innovation is important for promoting economic development and growth. In this paper, we examine the role of human capital in firms’ innovation by using a large sample of manufacturing firms from China. We use two firm-level datasets from China: one from metropolitan cities, and one from provincial small and medium sized cities. Patent applications are used as the measure of innovation. Human capital indicators used include skilled human capital (number of highly educated workers), general manager’s education and tenure, and management team’s education and age. We find that skilled human capital has a significant positive effect on firms’ innovation, while the management team’s age has a significant negative effect on innovation. The General Manager’s tenure plays a significant positive role in firm innovation in metropolitan cities, while it is the General Manager’s education that has a positive and significant effect on firms’ innovation in small and middle cities. We also find that the effect of R&D on patents is insignificant for firms in large cities, but it is positive and significant in the smaller and medium sized cities. We conclude by noting some policy issues for promoting innovation in developing economies.
    Keywords: human capital, education, innovation, patents, R&D, economic development, Asia, China
    JEL: J24 I25 D21 D22 L13 O32 O33
    Date: 2017
  3. By: Leonardo Baccini; Giammario Impullitti; Edmund J. Malesky
    Abstract: What do state-owned enterprises (SOEs) do? How do they respond to market incentives? Can we expect substantial efficiency gains from trade liberalization in economies with a strong presence of SOEs? Using a new dataset of Vietnamese firms we document a set of empirical regularities distinguishing SOEs from private firms. We embed some of these features characterizing SOEs operations in a model of trade with firm heterogeneity and show that they can hinder the selection effects of openness and tame the aggregate productivity gains from trade. We empirically test these predictions analyzing the response of Vietnamese firms to the 2007 WTO accession. Our result show that WTO accession is associated with higher probability of exit, lower markups, and substantial increases in productivity for private firms but not for SOEs. Domestic barriers to entry and preferential access to credit are key drivers of the different response of SOEs to trade liberalization. Our estimates suggest that the overall productivity gains would have been about 66% larger in a counterfactual Vietnamese economy without SOEs.
    Keywords: state capitalism, state-owned enterprises, trade liberalization, heterogeneous firms, gains from trade, WTO, Vietnam
    JEL: F12 F13 F14 P31 P33
    Date: 2017
  4. By: Planer-Friedrich, Lisa; Sahm, Marco
    Abstract: We compare the strategic potential of Corporate Social Responsibility (CSR) and Customer Orientation (CO) as commitments to larger quantities in Cournot competition, modeled as a multi-stage game. First, in addition to profits, firms can choose to care for the surplus of either all consumers (CSR) or their own customers only (CO). Second, they decide upon the weight of this additional objective. We find that firms prefer to care for all consumers, choosing positive levels of CSR.
    JEL: D43 L13 L21
    Date: 2017
  5. By: Yinbo Feng (School of Management, Fudan University, Shanghai, China, 200433); Ming Hu (Rotman School of Management, University of Toronto, Toronto, Ontario, Canada M5S 3E6)
    Abstract: We provide a theory unifying the long tail and blockbuster phenomenon. Specifically, we analyze a three-stage game where the firms first make entry decisions, then decide on the investment in its product and lastly customers sequentially arrive to make purchase decisions based on product quality and historic sales under the network effect. We analytically show that a growing network effect always contributes to the demand concentration on a small number of products. However, product variety and quality investments, as an outcome of firms¡¯ ex-ante competitive decisions, may increase or decrease, as the network effect grows. When the network effect parameter is smaller than a threshold, the increasing network effect would shift more demand towards the products with higher qualities, preempting more products from entering the market ex ante and inducing firms to adopt the blockbuster equilibrium strategy by making larger quality investment. When the network effect is stronger than the threshold, the increasing network effect would make the market easily concentrated to a few products. Even some low quality ones may have chances to become a ¡°hit.¡± Interestingly, in this case, the ex-ante equilibrium product variety would be broader and firms adopt the niche equilibrium strategy by maker smaller quality investment. We empirically test the theory with the movie box office data and find strong supporting evidence.
    Keywords: long tail; blockbuster; niche; product variety; network effect
    JEL: C72 D43 L11 L25 M21
    Date: 2017–10
  6. By: Tedi Skiti (Fox School of Business, Temple University)
    Abstract: In this article, I present causal effects of institutional entry barriers to new firms on incumbents’ technological innovation. In particular, I investigate the effect of entry barriers to municipal providers on incumbents’ technology deployment in the U.S. broadband industry. I use a spatial regression discontinuity design for private incumbents’ investment behavior and different entry regimes as sharp cutoffs for municipal entry threat. I collect and combine unique firm-level data on cable investment decisions and state-level data on legal entry barriers. I find that in markets with these entry barriers incumbents invest less in new technologies. Specifically, I find that the local entry barriers lead to a 20% lower technology adoption rate by cable incumbents because of reduced entry threat. These results imply that institutions that restrict entry of new firms can lead to significantly decreased technological innovation and lower internet quality across local markets, not only by deterring new firms but also by altering incumbents’ strategic investment in broadband networks.
    Keywords: Innovation, Entry Barriers, Broadband, Municipal, Spatial Discontinuity
    Date: 2017–09
  7. By: Rowena Gray; Giulia Montresor; Greg C. Wright
    Abstract: The extent to which firms respond to labor supply shocks has important implications for local and national economies. We exploit firm-level panel data on product and process innovation activities in the United Kingdom and find that the large, low-skill labor supply (immigration) shock generated by the 2004 expansion of the European Union to Eastern European countries increased process innovation and reduced product innovation. This implies that the innovation response to labor supply shocks may be more nuanced than previous literature has suggested. Both of these effects are increasing in the low-skill intensity of firm production as well as firm size. In addition, the reduction in product innovation is lessened for firms whose output is sold locally. We interpret this last finding as evidence in favor of a demand side effect that mitigates the overall decline in product innovation generated by the labor supply shock. We present a model that illustrates the channels through which firms may respond to labor supply shocks, and find that our results are mostly consistent with the model’s predictions.
    Keywords: product innovation, process innovation, immigration, labor supply shocks
    JEL: J23 J61 F22 O31 O33
    Date: 2017
  8. By: Andrei S. Gonçalves; Chen Xue; Lu Zhang
    Abstract: Two innovations in the structural investment model go a long way in explaining value and momentum jointly. Firm-level investment returns are constructed from firm-level accounting variables, and are then aggregated to the portfolio level to match with portfolio-level stock returns. In addition, current assets form a separate production input besides physical capital. The model fits well the value, momentum, investment, and profitability premiums jointly, and partially explains the positive stock-investment return correlations, the procyclicality and short-term dynamics of the momentum and profitability premiums, and the countercyclicality and long-term dynamics of the value and investment premiums. However, the model fails to explain momentum crashes.
    JEL: E13 E22 G12 G14 G31
    Date: 2017–10
  9. By: Haraguchi, Junichi; Matsumura, Toshihiro; Yoshida, Shohei
    Abstract: We formulate a mixed oligopoly model in which one state-owned public enterprise competes with n private firms in the same market and m private firms in the neighboring market. We investigate how n and m affect the optimal degree of privatization. We find a nonmonotone (monotone) relationship between the optimal degree of privatization and the number of private competitors in the neighboring (same) market. The optimal degree of privatization is increasing in the number of private firms in the same market, and the relationship between the optimal degree of privatization and the number of private competitors in the neighboring market is an inverted U-shape. An increase in m more likely increases the optimal degree of privatization when the degree of product differentiation is low. Our results suggest that more competitive pressure from competitors supplying differentiated products can reduce the optimal degree of privatization.
    Keywords: market competitiveness, partial privatization, number of private firms
    JEL: H44 L33 L44
    Date: 2017–10–16
  10. By: Halit Yanikkaya (Department of Economics, Gebze Technical University); Zeynep Aktas Koral (Department of Economics, Gebze Technical University)
    Abstract: Growing world trade puts forward the importance of trade liberalization and facilitation issues. As trade liberalization efforts of both governments and international organizations have mostly been successful, the importance of bureaucratic and informal impediments to international trade has been increased. An important part of these impediments is generally composed of complicated customs procedures and documentation requirements that generate the principal part of customs-related transaction costs. In this study, we examine the role of several factors in the determination of customs-related transaction costs, especially the waiting time to clear the cargo already in some Turkish ports. We find that customs-clearance line, customs personnel, institutions other than customs offices and information technology structure of the country are the principal factors having important roles in determination of these costs. However, there are several important factors affecting these costs through the customs clearance lines such as simplified procedures, frequency of operations, firm size, country of origin, type of the goods and some other risk factors.
    Keywords: transaction costs, customs procedures, in-depth interview, Turkey
    JEL: C93 D23 F10
    Date: 2017–08–18
  11. By: Xin Huang (Graduate School of Economics, Osaka University); Koichi Nakagawa (Graduate School of Economics, Osaka University); Jie Li (School of Management, Shanghai University)
    Abstract: Employing data from Chinese companies listed on the board for small and medium-sized enterprises (SMEs), the research examines the relationship between top management team (TMT) characteristics and corporate charitable activities in China. My findings confirm: 1) Firms less engaged in charitable activities are likely to have TMTs characterized by more educational specialty in science and engineering, and more functional background in output functions; 2) TMT age heterogeneity has a significant and positive effect on corporate charitable activities, while TMT educational specialty heterogeneity has a negative influence on corporate charitable activities; 3) TMT age, tenure, educational level and these heterogeneities of tenure, educational level and functional background have little or no influence on corporate charitable activities. Based on the upper echelons theory, the study can provide evidence for further research on top management teams and corporate social responsibility in an emerging economy.
    Keywords: top management team; charity; heterogeneity; corporate social responsibility; Chinese companies
    JEL: M54 M12 M14
    Date: 2017–10
  12. By: De Martiis, Angela; Fidrmuc, Jarko
    Abstract: We analyze how regional quality affects firm’s efficiency by identifying the impaired firms receiving financial assistance as those paying an implicit interest rate lower than the prime rate. Then, we decompose them into: real impaired firms unable to repay their loans, and those not repaying their debts even if financially they could. The regions with a high share of loans and crime exhibit a higher concentration of distressed firms, and crime increases the performance of existing companies.
    JEL: O43 E51 G33
    Date: 2017

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