nep-bec New Economics Papers
on Business Economics
Issue of 2018‒02‒19
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Does managerial personality matter? Evidence from firms in Viet Nam By Smriti Sharma; Finn Tarp
  2. Why has Idiosyncratic Risk been Historically Low in Recent Years? By Söhnke M. Bartram; Gregory W. Brown; René M. Stulz
  3. Relational Capital in Lending Relationships. Evidence from European Family Firms By Marco Cucculelli; Valentina Peruzzi; Alberto Zazzaro
  4. Firms Dynamics and Business Cycle: New Disaggregated Data By Lorenza Rossi; Emilio Zanetti Chini
  5. Optimal Production Tax and Privatization Policies under an Endogenous Market Structure By Cato, Susumu; Matsumura, Toshihiro
  6. Founder CEOs and new venture media coverage By Howard, Michael D.; Kolb, Johannes
  7. Specialization in bank lending: evidence from exporting firms By Paravisini, Daniel; Rappoport, Veronica; Schnabl, Philipp
  8. Norway’s economy: Maintaining a successful business sector in a changing world By Philip Hemmings
  9. The mitigating effect of bank financing on shareholder value and firm policies following rating downgrades By Mascia Bedendo; Linus Siming
  10. Tell the truth or not? The Montero mechanism for emissions control at work By Requate, Tilman; Camacho-Cuena, Eva; Ch'ng, Kean Siang; Waichman, Israel
  11. Changing demand for general skills, technological uncertainty, and economic growth By Masashi Tanaka
  12. Do Management Interventions Last? Evidence from India By Nicholas Bloom; Aprajit Mahajan; David McKenzie; John Roberts

  1. By: Smriti Sharma; Finn Tarp
    Abstract: Using novel data from micro, small, and medium firms in Viet Nam, we estimate the relationship between behavioural and personality traits of owners/managers—risk attitudes, locus of control, and innovativeness—and firm-level decisions. We extend the analysis beyond standard metrics of firm performance such as revenue and growth to study intermediate investments, including product innovation, worker training, and adoption of workplace safety measures that are potentially conducive to observed firm performance. Our results show that innovativeness and locus of control are positively correlated with revenue while risk aversion predicts lower revenue. Risk aversion is positively correlated with the adoption of safety measures. Innovativeness, as expected, is associated with an increased probability of product innovations. An internal locus of control predicts higher probability of investments, innovations, and worker training. Heterogeneity analyses indicate that innovativeness and risk aversion matter more for firm outcomes in provinces characterized by better business climate. Our results are robust to a variety of checks. We contribute to a nascent and rapidly growing literature on the importance of managerial capital by shedding light on the role of managerial personality characteristics for decision-making in firms in a dynamic transition economy.
    Date: 2018
  2. By: Söhnke M. Bartram; Gregory W. Brown; René M. Stulz
    Abstract: Since 1965, average idiosyncratic risk (IR) has never been lower than in recent years. In contrast to the high IR in the late 1990s that has drawn considerable attention in the literature, average market-model IR is 44% lower in 2013-2017 than in 1996-2000. Macroeconomic variables help explain why IR is lower, but using only macroeconomic variables leads to large prediction errors compared to using only firm-level variables. As a result of the dramatic change in the number and composition of listed firms since the late 1990s, listed firms are larger and older. Larger and older firms have lower idiosyncratic risk. Models that use firm characteristics to predict firm-level idiosyncratic risk estimated over 1963-2012 can largely or completely explain why IR is low over 2013-2017. The same changes that bring about historically low IR lead to unusually high market-model R-squareds.
    JEL: G10 G11 G12
    Date: 2018–01
  3. By: Marco Cucculelli; Valentina Peruzzi (Università Politecnica delle Marche); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR.)
    Abstract: We investigate the role of a family CEO’s relational capital and a non-family CEO’s managerial abilities in the context of bank relationships for a large sample of small- and medium-sized European firms. We begin by examining whether the relational capital embodied in the family leadership of the company influences the lending relationship with the bank in terms of information sensitivity and duration. Next, we test how banks value in their credit decisions the leadership of professionals and their managerial skills with respect to the relational capital of family CEOs. The results indicate that family businesses appointing managers from within the family are significantly more likely to maintain soft-information-based and longer-lasting lending relationships. However, family executives do not have a negative impact on the firm’s access to credit, while the creation of soft-information-based and long-lasting lending relationships significantly reduce the likelihood of experiencing credit restrictions. In view of these findings, family relational capital appears to have a univocal beneficial impact on the bank–firm relationship in our sample.
    Keywords: Family firm, family CEO, soft information, relational capital, relationship lending, credit rationing
    JEL: D22 G21 G22
    Date: 2018–02–01
  4. By: Lorenza Rossi (Department of Economics and Management, University of Pavia); Emilio Zanetti Chini (Department of Economics and Management, University of Pavia)
    Abstract: We provide stylized facts on firms dynamics by disaggregating U.S. yearly data from 1977 to 2013. To this aim, we use an unobserved component-based method, encompassing several classical regression-based techniques currently in use. Our series of entry and exit of firms at establishment level are feasible proxies of business cycle. Exit is a leading and countercyclical indicator, while entry is lagging and pro-cyclical. According to a standard structural econometric analysis, exit overshoots its average level in the medium-run. Several robustness checks confirm these results, hence supporting the most recent theoretical literature.
    Keywords: Bayesian VAR, Entry, Exit, Productivity, State Space Models.
    JEL: C13 C32 C40 E30 E32
    Date: 2018–02
  5. By: Cato, Susumu; Matsumura, Toshihiro
    Abstract: We investigate the optimal tax and privatization policies in a mixed oligopoly in which a state-owned public firm competes against private firms in a free-entry market. First, we investigate the domestic private firm case. The optimal tax rate is strictly positive except for the full privatization and full nationalization cases, and the relationship between the optimal tax rate and degree of privatization is inverted U-shaped. Further, the optimal degree of privatization is decreasing in the tax rate. Next, we investigate the foreign private firm case and find that the two policies are mutually independent.
    Keywords: industrial policy; privatization; free entry; unit tax-subsidy; foreign ownership
    JEL: H42 H44 L13
    Date: 2017–12–20
  6. By: Howard, Michael D.; Kolb, Johannes
    Abstract: Among their early key decisions, new ventures must choose whether to retain founder CEOs and how to craft a media strategy to best represent themselves to the outside world. These decisions have critical implications for firm survival and success, shaping perceptions of important external stakeholders. Our study explores the interplay between founder CEOs and media coverage and their effect on firm performance. We employ competing risk models to analyze data on 2,327 US VC-backed technology firms during the period 1985 to 2009, finding that founder CEOs enhance volume and positive tonality of media coverage, which increase the likelihood of firm IPO. Our findings provide important contributions for research into entrepreneurship and organizational reputation.
    Keywords: entrepreneurship,founder characteristics,media analysis,new venture success,competing risk models
    Date: 2018
  7. By: Paravisini, Daniel; Rappoport, Veronica; Schnabl, Philipp
    Abstract: We develop an empirical approach for identifying specialization in bank lending using granular data on borrower activities. We illustrate the approach by characterizing bank specialization by export market, combining bank, loan, and export data for all firms in Peru. We find that all banks specialize in at least one export market, that specialization affects a firm’s choice of new lenders and how to finance exports, and that credit supply shocks disproportionately affect a firm’s exports to markets where the lender specializes in. Thus, bank market-specific specialization makes credit difficult to substitute, with consequences for competition in credit markets and the transmission of credit shocks to the economy
    Keywords: banking; export finance; specialization
    JEL: F14 F34 G21
    Date: 2017–07–01
  8. By: Philip Hemmings
    Abstract: Norway’s success in maintaining high living standards, low inequality and good progress in gender balance owes much to its business sector. High-productivity business-sector jobs support high wages and profits, providing capacity to fund comprehensive public services and inclusive employment practices. Ensuring that the business sector thrives as globalisation and technologies evolve further and as the oil and gas sector enters long-term decline requires maintaining business-friendly conditions. This paper examines framework conditions, notably competition legislation and policy affecting firm entry and exit (“firm dynamics”). It evaluates how best to encourage new business models, as well the growing issue of labour supply among older cohorts. Education policy’s role in providing skills conducive to good lifetime earnings is also discussed.
    Keywords: competition, disruption, education, firm dynamics, innovation, labour supply, Productivity
    JEL: I23 I28 L53 O31 O38
    Date: 2018–02–19
  9. By: Mascia Bedendo (Audencia Business School - Audencia Business School); Linus Siming (Audencia Business School)
    Abstract: We document that shareholders of high-yield firms are less sensitive to credit rating downgrades the higher the proportion of bank financing in the firm. This positive effect is linked to firm behavior. In the year after the downgrade, high-yield firms with large bank debt ratios i) need to reduce their leverage less, and ii) display higher capital expenditures, compared to peers that rely relatively more on other sources of debt. Bank financing thus helps alleviate the adverse effects of rating downgrades on shareholders and firms in the high-yield segment. As such, one may view our findings as new evidence of the " specialness " and flexibility of bank debt.
    Keywords: Credit ratings,Bank financing,Shareholder value,Firm leverage,Firm investments
    Date: 2018–02
  10. By: Requate, Tilman; Camacho-Cuena, Eva; Ch'ng, Kean Siang; Waichman, Israel
    Abstract: We experimentally test the truth-telling mechanism proposed by Montero (2008) for eliciting firms' abatement costs. We compare this mechanism with two well-known alternative allocation mechanisms, grandfathering and pure auctioning. We conducted 27 treatments with a total of 623 participants, controlling for the allocation mechanism, the number of firms, and the true maximal emission levels. We find that, in line with the theoretical predictions, firms over-report their maximal emissions under grandfathering and under-report them under pure auctioning, while under Montero's mechanism firms almost always report their maximal emissions truthfully. However, in terms of efficiency, the difference between Montero's mechanism and pure auctioning disappears when there is more than one firm in the market.
    Keywords: mechanism design,environmental policy,permit trading,auctions,experiment
    JEL: C92 D44 L51 Q28
    Date: 2018
  11. By: Masashi Tanaka (Graduate School of Economics, Osaka University)
    Abstract: We develop a simple endogenous growth model featuring individuals f choices between general and firm-specific skills, endogenous technological innovation, and a government subsidy for education. General skills are less productive than are specific skills, but they enable workers to operate all technologies in the economy. We show that demand for general skills increases as countries catch up to the world technology frontier. Further, using aggregated data for 12 European OECD counties, we calibrate the model and compare the theoretical prediction with the data. In cross-country comparisons, we find that the returns on general skills and the impact of general education expenditure on GDP are higher in countries with higher total factor productivity. These findings support our theoretical argument of the positive relationship between firms f demand for general skills and countries f stages of development.
    Keywords: General and specific skills, Technological uncertainty, Education policy, Distance to world technology frontier
    JEL: J24 O33 O40 I22
    Date: 2018–01
  12. By: Nicholas Bloom; Aprajit Mahajan; David McKenzie; John Roberts
    Abstract: Beginning in 2008, we ran a randomized controlled trial that changed management practices in a set of Indian weaving firms (Bloom et al. 2013). In 2017 we revisited the plants and found three main results. First, while about half of the management practices adopted in the original experimental plants had been dropped, there was still a large and significant gap in practices between the treatment and control plants. Likewise, there remained a significant performance gap between treatment and control plants, suggesting lasting impacts of effective management interventions. Second, while few management practices had demonstrably spread across the firms in the study, many had spread within firms, from the experimental plants to the non-experimental plants, suggesting limited spillovers between firms but large spillovers within firms. Third, managerial turnover and the lack of Director time were two of the most cited reasons for the drop in management practices in experimental plants, highlighting the importance of key employees.
    JEL: M0 O0
    Date: 2018–01

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