nep-bec New Economics Papers
on Business Economics
Issue of 2017‒11‒19
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. Multinationality-Performance Relationship in Russian MNEs: The Moderating Effect of Contingencies By Veselova, Anna S.; Dikova, Desislava; Kazantcev, Anatoly K.
  2. Compliance Programs, Signaling and Firms' Internal Coordination By Daniel Herold
  3. Lobbying in Finance Industry: Evidence from US Banking System By Omer Unsal; M. Kabir Hassan; William J. Hippler
  4. The Diffusion of Knowledge via Managers' Mobility By Giordano Mion; Luca David Opromolla; Alessandro Sforza
  5. Taxation and Corporate Risk-Taking By Dominika Langenmayr; Rebecca Lester
  6. Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe By Dan Andrews; Filippos Petroulakis
  7. Firm Export Survival: Micro-Evidence from the Philippines By E.O. Annette Pelkmans-Balaoing; Gerrit Hugo van Heuvelen; Jean-Marie Viaene
  8. The Life-Cycle Dynamics of Exporters and Multinational Firms By Gumpert, Anna; Moxnes, Andreas; Ramondo, Natalia; Tintelnot, Felix
  9. Taxation and the Multinational Firm By Peter Egger; Michael Stimmelmayr
  10. Firm-level political risk: Measurement and effects By Hassan, Tarek; Hollander, Stephan; Tahoun, Ahmed; van Lent, Laurence
  11. Multinationals and Reallocation: Productivity Growth in the Canadian Manufacturing Sector By Gu, Wulong; Li, Jiang

  1. By: Veselova, Anna S.; Dikova, Desislava; Kazantcev, Anatoly K.
    Abstract: We use CassonÙ³ (1999) concept of (increasing) transaction and information costs adding to organizational complexity and expenditures, to arrive at an S-shaped relationship between degree of internationalization (DOI) and performance. To capture contextual complexity, we consider critical boundary conditions for the relationship DOIperformance of Russian firms, namely 1) the impact of environmental uncertainty, 2) firmlevel characteristics such as firm size and innovativeness and 3) the generic strategy followed by the Russian MNEs. We use a sample of 213 predominantly private and mature Russian MNEs. Our results show support for hypothesized S-shaped relationship; this relationship is conditional on the Russian firmsÙ degree of innovativeness and differentiation strategy. Environmental dynamics and firm size affect performance of internationalizing Russian firms to a lesser extent.
    Keywords: degree of internationalization, organizational complexity, expenditures, Russian MNCs, S-shape relationships, performance, environmental dynamics, firm size,
    Date: 2016
  2. By: Daniel Herold (Justus-Liebig-University Giessen)
    Abstract: Fines imposed on firms for corporate infringements such as cartels reduce these infringement's profitability. When a manager knows when a violation is unprofitable he can prevent violations committed by an uninformed employee by investing in compliance programs (CPs). Investments can be interpreted as signals. The paper shows that there exists a separating equilibrium where high investments in CPs induce the employee to obey the law. However, if CPs are too expensive the signal is not credible. The manager can also show personal commitment to compliance ('tone-at-the-top'). Coordination on an efficient outcome will then be achievable if commitment is costly. Imposing high, individual sanctions on the manager disturbs a firm's internal coordination because he is unable to credibly signal that an infringement does not pay off for the firm. However, imposing sanctions on the employee unambiguously deters violation.
    Keywords: Bitcoin, Compliance, Crime, Tone-at-the-top
    JEL: D82 D86 L14 L22 K20 K21
    Date: 2017
  3. By: Omer Unsal; M. Kabir Hassan; William J. Hippler
    Abstract: We examine the relationship between corporate lobbying, shareholder-based litigation outcomes, and firm value for financial firms. First, we show that political lobbying lowers the litigation likelihood for financial institutions. Secondly, lobbying firms experience a higher likelihood of having litigation dismissed, and the average settlement amount is significantly lower for lobbying institutions. In addition, shortly after a litigation announcement, lobbying firms experience significantly higher cumulative abnormal returns (CARs), compared to non-lobbying firms. Finally, we show that lobbying firms have higher long-run buy-and-hold abnormal stock returns (BHARs) following lobbying activities. Our results link financial institution lobbying activity with improved legal outcomes and increases in firm value, implying that lobbying may protect financial institutions from reduced firm value through the building of political capital and reducing litigation costs.
    Keywords: Corporate lobbying, corporate fraud, corporate governance
    JEL: G30 G32 G38 K41
    Date: 2016–12
  4. By: Giordano Mion; Luca David Opromolla; Alessandro Sforza
    Abstract: Better managers and managerial practices lead to better firm performance. Yet, little is known about what happens when managers move across firms. Does a firm hiring a good manager improve its performance? If yes is there some valuable knowledge the manager has acquired and successfully diffused to the new firm? In order to answer these questions we use information related to specific activities the manager was involved in when working for previous firms. More specifically, we use information on whether the manager has worked in the past for firms exporting to a specific destination country or a specific product. Our data is rich enough to allow controlling for both manager and firm unobservables and wash out any time-invariant ability of the manager as well as overall firm performance. We find that the export experience gained by managers in previous firms leads their current firm towards higher export performance, and commands a sizable wage premium for the manager. We use several strategies to deal with endogeneity including an exogenous event study: the sudden end of the Angolan civil war in 2002. We further refine our analysis by looking at different types of managers (general, production, financial and sales) and show how specific export experience interacts with the degree of product differentiation and/or the financial vulnerability of a firm’s products as well as with rising import competition from China.
    Keywords: managers, knowledge diffusion, firm performance, job mobility, export experience
    JEL: M20 L20 F16 J31
    Date: 2016
  5. By: Dominika Langenmayr; Rebecca Lester
    Abstract: We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risk-taking is positively related to the length of tax loss periods because the loss rules shift some risk to the government; and second, the tax rate has a positive effect on risk-taking for firms that expect to use losses, and a weak negative effect for those that cannot. Thus, the sign of the tax effect on risky investment hinges on firm-specific expectations of future loss recovery.
    Keywords: corporate taxation, risk-taking, net operating losses
    JEL: H25 H32 G32
    Date: 2017
  6. By: Dan Andrews (OECD); Filippos Petroulakis (OECD)
    Abstract: This paper explores the connection between “zombie” firms (firms that would typically exit in a competitive market) and bank health and the consequences for aggregate productivity in 11 European countries. Controlling for cyclical effects, the results show that zombie firms are more likely to be connected to weak banks, suggesting that the zombie firm problem in Europe may at least partly stem from bank forbearance. The increasing survival of zombie firms congests markets and constrains the growth of more productive firms, to the detriment of aggregate productivity growth. Our results suggest that around one-third of the impact of zombie congestion on capital misallocation could be directly attributed to bank health and additional analysis suggests that this may partly be due to reduced availability of credit to healthy firms. Finally, improvements in bank health are more likely to be associated with a reduction in the prevalence of zombie firms in countries where insolvency regimes do not unduly inhibit corporate restructuring. Thus, leveraging the important complementarities between bank strengthening efforts and insolvency regime reform would contribute to breaking the shackles on potential growth in Europe.
    Keywords: Credit Constraints, Factor Reallocation, Productivity, Zombie Firms
    JEL: D24 G21 L25 O47
    Date: 2017–11–20
  7. By: E.O. Annette Pelkmans-Balaoing; Gerrit Hugo van Heuvelen; Jean-Marie Viaene
    Abstract: This paper explores firms’ export dynamics in emerging economies where local firms face stiff foreign competition, both at home and abroad, and thus compelled to choose the level of quality in which to export. We develop and test a model of vertical product differentiation where the link between export performance and product quality is central. The impact of other governmental decisions related to multiple uncertainties faced by exporters such as exchange rate, freight and trade policies, are investigated as well. A rich and new firm-level data base is employed, which matches the firm-coded trade transactions data (7-digit) of Philippine manufacturing firms, with their corresponding firm survey data from 1996-2007. Using discrete survival analysis, we show that export spells have a short duration, 20 months on average. Particularly 72.2% of trade relationships in year one do not survive to year two. Market uncertainties, particularly those linked to exchange rates and transport costs increase the probability of firm exit as expected. Export survival rates are highest among firms that select an export price contained in the interval between the median and mean of the international distribution of product prices. In contrast, those choosing a price located at both ends of this distribution have the least chance of survival.
    Keywords: intra-product trade, product quality, firm dynamics, survival analysis, multiple uncertainty
    JEL: F10 F14
    Date: 2016
  8. By: Gumpert, Anna (LMU Munich); Moxnes, Andreas (University of Oslo); Ramondo, Natalia (University of California at San Diego); Tintelnot, Felix (University of Chicago)
    Abstract: This paper studies the life-cycle dynamics of exporters and multinational enterprises (MNEs). We present a dynamic model of trade and MNE activity in which the mode of serving a market depends on the well-known proximity-concentration tradeoff. We show that the option of performing MNE activities in the model produces life-cycle patterns for exporters that differ from those in an export-only model. Calibrating our model to rich firm-level data from France and Norway, our main quantitative finding is that a reduction in trade costs triggers much larger responses in growth rates and exit rates, for young exporters, in the model with MNEs than in the model without MNEs. We also show that the model is largely consistent with a set of new facts on the joint life-cycle dynamic behavior of exporters and MNEs.
    Keywords: international trade; exporters; multinational firm; markov process; sunk cost; proximity-concentration tradeoff; trade liberalization;
    JEL: F01 F02
    Date: 2017–11–06
  9. By: Peter Egger; Michael Stimmelmayr
    Abstract: This chapter provides a survey of issues which emerge with the taxation of multinational enterprises. It addresses tax rates which affect multinational firms directly and focuses on provisions and incentives which relate to the profits and investments of such firms directly. It survey positive as well as normative principles of such taxation and incentives, relates to tax-avoidance practices, and discusses their remedies.
    Keywords: taxation, foreign direct investment, multinational firms
    JEL: F21 F23 H25 H26
    Date: 2017
  10. By: Hassan, Tarek; Hollander, Stephan; Tahoun, Ahmed; van Lent, Laurence
    Abstract: We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing that it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm's actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. Interestingly, we find that the incidence of political risk across firms is far more heterogeneous and volatile than previously thought. The vast majority of the variation in our measure is at the firm-level rather than at the aggregate or sector-level, in the sense that it is neither captured by time fixed effects and the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm-level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter.
    Keywords: firm-level; Lobbying; Political uncertainty; quantification
    JEL: D80 E22 G18 G38 H32
    Date: 2017–11
  11. By: Gu, Wulong; Li, Jiang
    Abstract: Output growth in Canadian manufacturing was slower in the 2000s than in the 1990s. The sector?s real output declined, in contrast to an overall increase in output in the business sector (Clarke and Couture 2017). It fell rapidly during the 2007-to-2009 financial crisis, and returned to its pre-crisis level only in 2016. The market share of foreign-controlled firms also declined after 2000 (Baldwin and Li 2017). This paper examines the role of multinationals and reallocation in productivity growth in the Canadian manufacturing sector for the period from 2001 to 2010, a period of significant change in this sector. It contributes to the literature on several fronts. First, it complements the literature by examining productivity growth at the firm level. This paper also seeks to examine whether the decline that started around 2006 was associated with changes in the effect of reallocation and the role of foreign multinationals in aggregate productivity growth.
    Keywords: Economic accounts, Manufacturing, Productivity accounts
    Date: 2017–10–30

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