nep-bec New Economics Papers
on Business Economics
Issue of 2018‒01‒29
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. International Evidence on Firm Level Decisions in Response to the Crisis: Shareholders vs. Other Stakeholders* By Allen, Franklin; Carletti, Elena; Grinstein, Yaniv
  2. The Effects of Entry in Oligopolistic Trade with Bargained Input Prices By Naylor, Robin; Soegaard, Christian Author-workplace-Name University of Warwick
  3. Firm heterogeneity and aggregate business services exports: micro evidence from Belgium, France, Germany and Spain By Andrea Ariu; Elena Biewen; Sven Blank; Guillaume Gaulier; María Jesús González; Philipp Meinen; Daniel Mirza; César Martín Machuca; Patry Tello
  4. Informality and productivity: do firms escape EPL through shadow employment? Evidence from a regression discontinuity design By Giuseppina Gianfreda; Giovanna Vallanti
  5. A Structural Analysis of US Entry and Exit Dynamics By Hashmat Khan; Hashmat Khan; Hashmat Khan; Jean-Christophe Poutineau
  6. A Matching Theory of Global Supply Chains By SUGITA, Yoichi
  7. Gender Gap in Entrepreneurship and Firm Performance in Developing Countries By Inmaculada Martínez-Zarzoso
  8. The Exit and Survival Patterns of Immigrant Entrepreneurs: The Case of Private Incorporated Companies By Ostrovsky, Yuri; Picot, Garnett
  9. The Use and Misuse of Patent Data: Issues for Corporate Finance and Beyond By Josh Lerner; Amit Seru
  10. On supply function competition in a mixed oligopoly By Gutiérrez-Hita, Carlos; Vicente-Pérez, José
  11. Mergers, investments and demand expansion By Bourreau, Marc; Jullien, Bruno
  12. Retained Earnings versus Bank Financing in Intra-industry Firm Progress in East Asia: A Regional Development Model of Capitalism By Andriesse, Edo; Mamoon, Dawood
  13. Use of knowledge-intensive services in the Chilean wine industry By Farinelli, Fulvia; Fernández-Stark, Karina; Meneses, Javier; Meneses, Soledad; Mulder, Nanno; Reuse, Karim

  1. By: Allen, Franklin; Carletti, Elena; Grinstein, Yaniv
    Abstract: The relationship between changes in GDP and unemployment during the 2008 financial crisis differed significantly from previous experiences and across countries. We study firm-level decisions in France, Germany, Japan, the UK, and the US. We find significant differences between the response of US and non-US firms. US firms significantly decreased their production costs relative to firms in other countries. They have also reduced debt, reduced dividend payout, and increased their cash holdings compared to firms in other countries. The differences are, in general, explained by differences in financial leverage. However, financial leverage does not explain differences between production decisions in German and U.S. firms and between Japanese and US firms. We argue that differences in firm governance between US firms and firms in Germany and Japan drive these responses. US firms are more prone to cut labor costs and reduce leverage compared to German firms and Japanese firms in order to achieve larger profits and a larger cash-cushion in the short-run.
    Keywords: corporate governance; firm-level decisions; Okun's law
    JEL: E30 G01 G32 G34
    Date: 2018–01
  2. By: Naylor, Robin (University of Warwick); Soegaard, Christian Author-workplace-Name University of Warwick
    Abstract: Firms which face the threat of import competition from foreign rivals are conventionally seen as favouring import protection. We show that this is not necessarily the case when domestic firms' input prices are determined endogenously. In a framework where the input price is determined through bargaining with an (upstream) input supplier, the relationship between a domestic (downstream) firm's profits and the number of foreign competitors depends on trade costs. If trade costs are sufficiently high, then an increase in the number of foreign entrants can raise the profits of a downstream firm in a home market characterised by Cournot competition. The intuition for this result is that increased product market competition through the entry of foreign firms is mirrored by profit-enhancing moderation of the bargained input price. We examine a number of tariff and non-tariff barriers to international trade and identify conditions under which import-competing firms will favour the removal of barriers to foreign competition.
    Keywords: Oligopoly ; international trade ; profits ; entry ; vertical markets
    JEL: F13 F16 L13
    Date: 2018
  3. By: Andrea Ariu (University of Geneva, Switzerland, Georgetown university, USA, and Crenos, Italy); Elena Biewen (Deutsche Bundesbank); Sven Blank (Deutsche Bundesbank); Guillaume Gaulier (Banque de France and CEPII); María Jesús González (Banco de España); Philipp Meinen (Deutsche Bundesbank); Daniel Mirza (University François Rabelais de Tours, LEO-CNRS (Orleans), Banque de France and CEPII); César Martín Machuca (Banco de España); Patry Tello (Banco de España)
    Abstract: This paper uses detailed micro data on service exports at the firm-destination-service level to analyse the role of firm heterogeneity in shaping aggregate service exports in Belgium, France, Germany and Spain from 2003 to 2007. We decompose the level and the growth of aggregate service exports into different trade margins paying special attention to firm heterogeneity within countries. We find that the weak export growth of France is at least partly due to poor performance by small exporters. By contrast, small exporters are the most dynamic contributors to the aggregate exports of Belgium, Germany and Spain. Our results highlight the importance of firm heterogeneity in understanding aggregate export growth.
    Keywords: service exports, firm heterogeneity, micro data panel
    JEL: F14
    Date: 2017–10
  4. By: Giuseppina Gianfreda (Università della Tuscia); Giovanna Vallanti (Luiss "Guido Carli")
    Abstract: Compliance with labour law has costs and benefits which may depend on the institutional environment in which firms operate. Although several studies have documented a negative effect of informality on firms' productivity and growth, it is a fact that firms may resort to undeclared employment to escape excessive tax or regulatory burden. We argue that firms may respond to strict employment protection legislation through accrued informality thus (partially) offsetting the negative effect of informality on productivity. We exploit the Italian dismissal legislation imposing higher firing costs for firms with more than 15 workers and show that informality reduces the turnover of formal jobs for firms above the 15 workers threshold; furthermore, while the overall effect of informality on firms' productivity is negative, the differential effect for firms above the threshold as compared to smaller firms is positive and significant.
    Keywords: tax evasion, EPL, productivity, firm size, RD estimation.
    JEL: D02 D22 D24
    Date: 2017
  5. By: Hashmat Khan (Department of Economics, Carleton University); Hashmat Khan (Department of Economics, Carleton University); Hashmat Khan (Department of Economics, Carleton University); Jean-Christophe Poutineau (Université de Rennes I)
    Abstract: We report empirical evidence indicating that US business formation has recently turned more volatile, procyclical and persistent due to changes in exit dynamics. To study these stylized facts, we estimate a DSGE model with endogenous entry and exit. Business units feature heterogeneous productivity and they shut down if the present value of expected future dividends falls below the current liquidation value. The estimation results imply structural changes in US exit dynamics after 2007: the semi-elasticity of the exit rate to critical productivity has increased and the average plant-level productivity has decreased.
    Keywords: Endogenous entry and exit, DSGE models, US business cycles
    JEL: E20 E32
  6. By: SUGITA, Yoichi
    Abstract: This paper develops a simple general equilibrium model of global supply chains (GSCs) that jointly addresses three key decisions of firms forming GSCs, namely selection (whether to form a GSC), location (where to find GSC partners), and matching (with which firms to form a GSC). The model develops a Becker type assortative matching model of final producers and suppliers both of which are heterogeneous in capability (productivity/quality) of their tasks, and integrates it with a Melitz type model of selection and a Ricardian comparative advantage model of location. The model presents a new mechanism of gains from trade associated with firm heterogeneity. Namely, trade liberalization causes rematching of firms toward positive assortative matching at the world level as a recent empirical study on exporter-importer matching data observes.
    Keywords: Global supply chains, firm heterogeneity, two-sided heterogeneity, matching, trade in intermediate goods, quality differentiation
    JEL: F12
    Date: 2017–12
  7. By: Inmaculada Martínez-Zarzoso (Dept of Economics and Center for Statistics, Georg-August Universitaet Goettingen, Göttingen, Germany & Dept of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: This paper uses firm-level data from the World Bank Enterprise Surveys (WBES) to investigate productivity gaps between female and male-managed companies in developing countries. We depart from the previous literature by using the gender of the top manager as target variable, which is newly available in the 2016 version of the WBES. The main results indicate that it is crucial to distinguish between female management and female ownership and also the confluence between both. We find that when the firms are managed by females and there are not female owners, they show a higher average labour productivity and total factor productivity. However, if females are among the owners and a female is the top manager, then their productivity is lower than for other firms. These results are very heterogeneous among regions. In particular, results in South Saharan Africa, East Asia and South Asia seems to be driving the general results
    Keywords: firm performance, gender gap, developing countries, top manager, TFP
    JEL: J16 O15 O44
    Date: 2017
  8. By: Ostrovsky, Yuri; Picot, Garnett
    Abstract: There is only a small body of international literature and little Canadian evidence related to exit and survival patterns of immigrant-owned businesses. This paper addresses this gap by answering two questions. First, do exit and survival patterns (durations) of firm ownership differ between immigrants and individuals born in Canada? Second, what characteristics are associated with lower (or higher) exit rates from business ownership and longer ownership spells among immigrants? The analysis is limited to ownership of private incorporated firms.
    Keywords: Business ownership, Business performance and ownership, Employment and unemployment, Ethnic diversity and immigration, Labour, Labour market and income
    Date: 2018–01–19
  9. By: Josh Lerner; Amit Seru
    Abstract: Patents and citations are powerful tools for understanding innovative activity inside the firm, and are increasingly use in corporate finance research. But due to the complexities of patent data collection and the changing spatial and industry composition of innovative firms, biases may be introduced. We highlight several patent-level biases induced by truncation of reported patent awards and citations, affecting estimates of time trends and patterns across technology classes and regions. We then introduce measures of patent and citation biases. When aggregated at the firm level, these survive popular methods of adjustment and are correlated with firm-level characteristics. We show that these issues can lead to problematic – and ex ante predictable – inferences, using several examples from prominent streams of finance literature that use patent data. We suggest a number of concrete steps that researchers can employ to avoid biased inferences.
    JEL: G30 O34
    Date: 2017–11
  10. By: Gutiérrez-Hita, Carlos; Vicente-Pérez, José
    Abstract: In this paper we present a mixed duopoly model of supply function competition under uncertainty with product differentiation. We find that, regardless the nature of product heterogeneity, the best response of the private firm always arises as strategic complement. Contrary to this, state-owned firm's best response arises either as strategic complement or substitute depending on the product heterogeneity. As a result of the ex post realization of the demand uncertainty, different equilibria are reached.
    Keywords: Supply Function Equilibria; Mixed oligopoly; Differentiated products.
    JEL: D43 H42 L13
    Date: 2018–01–07
  11. By: Bourreau, Marc; Jullien, Bruno
    Abstract: In this paper, we study the impact of a merger to monopoly on prices and investments. Two single-product firms compete in prices and coverage for a new technology. In equilibrium, one firm covers a larger territory than its competitor with the new technology, leading to singleproduct and multi-product zones, and sets a higher uniform price. If the firms merge, the merged entity can set different prices and coverage for the two products. We find that the merger raises prices and total coverage, but reduces the coverage of the multi-product zone. We also show that the merger can increase total welfare and consumer welfare.
    Keywords: horizontal mergers; investments; competition
    JEL: D43 L13 L40
    Date: 2017–12
  12. By: Andriesse, Edo; Mamoon, Dawood
    Abstract: The Varieties of Capitalism approach, relatively new in comparative political economy, has generated a number of studies investigating national capitalist systems and economic performances of developed countries. This approach offers a useful analytical model as it enables to study the institutional relations of firms and relations between these institutions, the so-called institutional complementarities. The most common result of the approach is the dichotomy between Liberal Market Economies, notably the United States and the United Kingdom, and Coordinated Market Economies, notably Germany, France and Japan. In this paper an attempt is made to apply the Varieties of Capitalism approach to the regional level of scale in developing countries. The province of Satun in Southern Thailand and the state of Perlis in Northern Malaysia, two bordering and peripheral regions within their respective national space economies, have been chosen as research areas. Using a modified analytical model of the Varieties of Capitalism approach, this paper tries to reveal whether and how firms cooperate with each other and how firms find access to finance. Moreover, it is investigated what institutional complementarities can be identified. It should be noted that this paper does not address institutional relations between the private and public sector. The paper starts with an outline of the Varieties of Capitalism approach and a modification for analysis at the regional level of scale in developing countries. This is followed by an economic geographical overview of Satun and Perlis. The next two sections concern the main topics: inter-firm relations and access to finance. Obviously this paper ends with some concluding remarks. Results of firm surveys in each region indicate that inter-firm relations are relatively strong in Satun, coupled with a relatively important role for banks. These results contrast with the Perlis’ case where inter-firm relations are much weaker and owners and shareholders of firms are important providers of financial capital.
    Keywords: Capitalism, Intra industry firm behavior, East Asia
    JEL: L1 L16 P11 P17
    Date: 2017–11–14
  13. By: Farinelli, Fulvia; Fernández-Stark, Karina; Meneses, Javier; Meneses, Soledad; Mulder, Nanno; Reuse, Karim
    Abstract: Over the past two decades, Chile has successfully developed its wine industry, being the world’s fourth largest exporter in 2015 with mostly medium-quality wines. In addition to well known key factors such as climate and soil conditions, (foreign direct) investment in firms, imports of specialized capital equipment and highly skilled human resources, this paper explores the role of 38 (knowledge intensive) services in five different segments of the wine value chain. On the basis of answers by 29 wine firms regarding services activities on a survey carried out for this study, firms indicate they outsource about the same share (34%) as they carry out in-house (32%), while another 15% is produced using a combination of both. The degree of subcontracting of services falls as one moves further along the segments of the value chain. Moreover, it seems that small and large firms fully or partially outsource about half of all services, while medium size firms outsource less.
    Date: 2017–12–31

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