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on Business Economics |
| By: | Schmalz, Martin |
| Abstract: | The question of whether and how partial common-ownership links between strategically interacting firms affect firm behavior has been the subject of theoretical inquiry for decades. Since then, consolidation and increasing concentration in the asset-management industry has led to more pronounced common ownership concentration (CoOCo). Moreover, recent empirical research has provided evidence consistent with the literature's key predictions. The resulting antitrust concerns have received much attention from policy makers worldwide. However, the implications are more general: CoOCo affects the objective function of the firm, and therefore has implications for all subfields of economics studying corporate conduct -- including corporate governance, strategy, industrial organization, and all of financial economics. This article connects the papers establishing the theoretical foundations, reviews the empirical and legal literatures, and discusses challenges and opportunities for future research. |
| Keywords: | Antitrust; control; industry concentration; network; objective of the firm; ownership; shareholder unanimity |
| JEL: | D21 D22 G10 G30 G32 G34 J41 K21 L10 L16 L21 L40 L41 L42 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12598&r=bec |
| By: | Jorge Alvarez; Felipe Benguria; Niklas Engbom; Christian Moser |
| Abstract: | We document a large decrease in earnings inequality in Brazil between 1996 and 2012. Using administrative linked employer-employee data, we fit high-dimensional worker and firm fixed effects models to understand the sources of this decrease. Firm effects account for 40 percent of the total decrease and worker effects for 29 percent. Changes in observable worker and firm characteristics contributed little to these trends. Instead, the decrease is primarily due to a compression of returns to these characteristics, particularly a declining firm productivity pay premium. Our results shed light on potential drivers of earnings inequality dynamics. |
| Keywords: | Brazil;Western Hemisphere;Earnings Inequality, Linked Employer-Employee Data, Firm and Worker Heterogeneity, Productivity, Firm Behavior: Empirical Analysis |
| Date: | 2017–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/278&r=bec |
| By: | Lorendana Fattorini (IMT School for advanced studies); Mahdi Ghodsi (The Vienna Institute for International Economic Studies); Armando Rungi (IMT School for advanced studies) |
| Abstract: | In this paper, we empirically test the effects of the EU ‘cohesion policy’ on the performance of about 500,000 European manufacturing firms after combining regional policy data at NUTS- 2 level with firm-level data. In a framework of heterogeneous firms and different absorptive capacity of regions, we show that financing of ‘cohesion policy’ by European Regional Development Fund (ERDF) aimed at direct investments in R&D correlates with improvement of firms’ productivity in a region. Conversely, funding designed at overall Business Support correlates with negative productivity growth rates. In both cases, we registered an asymmetric impact along the firms’ productivity distribution, where a stronger impact can be detected in the first quartile, i.e. less efficient firms in a region. We finally argue that considering the heterogeneity of firms allows a better assessment of the impact of ‘cohesion policy’ measures. |
| Keywords: | firm performance, total factor productivity, cross-country analysis, convergence, regional policy |
| JEL: | D22 D24 E23 F15 L25 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:ial:wpaper:2/2018&r=bec |
| By: | Antón, Miguel; Ederer, Florian; Gine, Mireia; Schmalz, Martin |
| Abstract: | We show theoretically and empirically that managers have steeper financial incentives to exert effort and reduce costs when an industry's firms are controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. A side effect of steeper incentives is more aggressive competition. These findings inform a debate about the objective function of the firm. |
| Keywords: | CEO pay; Common ownership; Competition; corporate governance; management incentives |
| JEL: | D21 G30 G32 J31 J41 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12674&r=bec |
| By: | Pugsley, Benjamin; Sedlacek, Petr; Sterk, Vincent |
| Abstract: | Only half of all startups survive past the age of five and surviving businesses grow at vastly different speeds. Using micro data on employment in the population of U.S. businesses, we estimate that the lion's share of these differences is driven by ex-ante heterogeneity across firms, rather than by ex-post shocks. We embed such heterogeneity in a firm dynamics model and study how ex-ante differences shape the distribution of firm size, ``up-or-out'' dynamics, and the associated gains in aggregate output. ``Gazelles'' --a small subset of startups with particularly high growth potential-- emerge as key drivers of these outcomes. Analyzing changes in the distribution of ex-ante firm heterogeneity over time reveals that the birth rate and growth potential of gazelles has declined, creating substantial aggregate losses. |
| Keywords: | Big Data; Firm Dynamics; Macroeconomics; Startups |
| JEL: | D22 E23 E24 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12670&r=bec |
| By: | Laura Bartiloro (Bank of Italy); Marco Bottone (Bank of Italy); Alfonso Rosolia (Bank of Italy) |
| Abstract: | Quite a lot. We investigate how the cross-sectional heterogeneity of firms’ inflation expectations reflects information availability and awareness of recent macroeconomic developments, observable firm characteristics and broader macroeconomic developments using the Bank of Italy’s survey on businesses’ inflation and growth expectations. We find that: on average about half of the dispersion of expectations is traceable to a lack of information about the most recent price developments; firms incorporate new information into their expectations within a quarter; the dispersion of expectations is related in a statistically significant way to some important aggregate economic variables, and it is greater when current inflation is farther away from the ECB’s price stability goal. Since 2015 the weight attributed to prior beliefs of low inflation has steadily increased and the uncertainty surrounding them has decreased. Furthermore, since 2014 there has no longer been an empirical connection between the dispersion of expectations and the distance from the ECB price stability. These two facts suggest an increased risk of inflation expectations being de-anchored." |
| Keywords: | Inflation Expectations, Learning, Firms |
| JEL: | D22 D8 E31 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_414_17&r=bec |
| By: | Marc-Andreas Muendler; James E. Rauch |
| Abstract: | It is well established that employee spinoffs learn their parents’ technologies, but little is known about their demand-side learning. We exploit the identification in international trade data of parent markets (countries) to investigate whether exporting employee spinoffs of exporting parents have an advantage in accessing their parents’ markets over exporting comparison firms well positioned to learn those markets at arm’s length. We find that, controlling for the greater overlap of spinoffs with their parents’ export products, at entry spinoffs access 51 percent more parent markets than exporting firms in the same 4-digit industries and municipalities as the parents. This advantage shrinks monotonically with time, becoming statistically insignificant four years after entry, indicating that intrafirm learning provides spinoffs with a four-year head start over learning at arm’s length. Spinoffs do not overlap more than comparison firms with parent markets that the parents did not serve at spinoff entry, providing evidence against the alternative hypothesis that product overlap inadequately controls for greater technological similarity of spinoffs to parents. Firm entry into parent markets predicted by spinoff status does not lead to entry into “adjacent” markets the following year. |
| JEL: | F14 L25 L26 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24302&r=bec |
| By: | Delfgaauw, Josse (Erasmus University Rotterdam); Dur, Robert (Erasmus University Rotterdam); Souverijn, Michiel (Erasmus University Rotterdam) |
| Abstract: | The performance of a work team commonly depends on the effort exerted by the team members as well as on the division of tasks among them. However, when leaders assign tasks to team members, performance is usually not the only consideration. Favouritism, employees' seniority, employees' preferences over tasks, and fairness considerations often play a role as well. Team incentives have the potential to curtail the role of these factors in favor of performance – in particular when the incentive plan includes both the leader and the team members. This paper presents the results of a field experiment designed to study the effects of such team incentives on task assignment and performance. We introduce team incentives in a random subsets of 108 stores of a Dutch retail chain. We find no effect of the incentive, neither on task assignment nor on performance. |
| Keywords: | team incentives, task assignment, field experiment |
| JEL: | C93 M12 M52 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11228&r=bec |
| By: | Hirsch, Boris (Leuphana University Lüneburg); Müller, Steffen (IWH Halle) |
| Abstract: | This paper investigates the influence of industrial relations on firm wage premia in Germany. OLS regressions for the firm effects from a two-way fixed effects decomposition of workers' wages by Card, Heining, and Kline (2013) document that average premia are larger in firms bound by collective agreements and in firms with a works council, holding constant firm performance. RIF regressions show that premia are less dispersed among covered firms but more dispersed among firms with a works council. Hence, deunionization is the only among the suspects investigated that contributes to explaining the marked rise in the premia dispersion over time. |
| Keywords: | firm wage premium, industrial relations, trade unions, works councils, bargaining power, rent sharing, wage inequality, Germany |
| JEL: | J31 J52 J53 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11309&r=bec |
| By: | Robert W. Fairlie; Frank Fossen |
| Abstract: | A common finding in the entrepreneurship literature is that business creation increases in recessions. This counter-cyclical pattern is examined by separating business creation into two components: “opportunity” and “necessity” entrepreneurship. Although there is general agreement in the previous literature on the conceptual distinction between these two factors driving entrepreneurship, there are many challenges to creating a definition that is both objective and empirically feasible. We propose an operational definition of opportunity versus necessity entrepreneurship using readily available nationally representative data. We create a distinction between the two types of entrepreneurship based on the entrepreneur’s prior work status that is consistent with the standard theoretical economic model of entrepreneurship. Using this definition we document that “opportunity” entrepreneurship is pro-cyclical and “necessity” entrepreneurship is counter-cyclical. We also find that “opportunity” vs. “necessity” entrepreneurship is associated with the creation of more growth-oriented businesses. The operational distinction proposed here may be useful for future research in entrepreneurship. |
| Keywords: | entrepreneurship, opportunity, necessity, self-employment, business cycle |
| JEL: | L26 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6854&r=bec |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University); Tetsuya Nakajima (Faculty of Economics, Osaka City University) |
| Abstract: | Assuming asymmetric product differentiation, we reconsider the merger paradox in the cases of quantity-setting and price-setting games. We investigate whether emergence of the merger paradox depends on the degree of product differentiation of the outsider, irrespective of the mode of competition. In particular, being different from the result of Deneckere and Davidson (1985), we show that the merger paradox arises in the case of price-setting games if the degree of product differentiation of the outsider is sufficiently small. |
| Keywords: | merger paradox; quantity-setting game, price-setting game, asymmetric product differentiation |
| JEL: | D43 L12 L13 L41 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:173&r=bec |
| By: | Paul Mizen; Frank Packer; Eli Remolona; Serafeim Tsoukas |
| Abstract: | We borrow from the literature on sovereign debt finance the idea of “original sin” and redefine it for use in corporate finance. In its new incarnation, original sin refers to the difficulty firms in many emerging markets have in borrowing domestically long-term, even in the local currency. We infer the nature of original sin from 5,500 financing decisions by firms in seven Asian emerging markets over a period of 11 years. Our sample period covers an episode when bond issuers had a choice between a less developed but growing onshore market, which varied across countries in the level of development, and a deep and liquid offshore market. We find that even in countries with onshore markets, it is often easier for unseasoned firms to issue offshore (in foreign currency) than to issue onshore, but structural change brought about by market development reverses this effect. In addition, once such a firm becomes a seasoned issuer, it is absolved from domestic original sin and is then able to act opportunistically and go to the market favoured by interest differentials. |
| Keywords: | bond financing; offshore markets; emerging markets; market depth; global credit |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:18/04&r=bec |
| By: | Gianpaolo Parise; Fabrizio Leone |
| Abstract: | Nepotism emerges in a multiplicity of contexts from political assignments to firm hiring decisions, but what are its real effects on the economy? This paper explores how nepotism affects corporate investment. To measure nepotism, we build a unique dataset of family connections among individuals employed in strategic positions by the same firm. We address endogeneity concerns by exploiting the heterogeneity in ancestries across U.S. counties to construct a measure of inherited family values. We find that firms headquartered in counties where locals inherited strong family values exhibit more nepotism. Using this measure and the percentage of family households in the county as instrumental variables, we provide evidence that nepotism hinders investment. Overall, our results suggest that underinvestment in these firms is driven by both lower quality of hired workers and lower incentive to exert effort. |
| Keywords: | nepotism, investment, moral hazard, hiring practices, family ties |
| JEL: | G31 J33 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:693&r=bec |