nep-bec New Economics Papers
on Business Economics
Issue of 2018‒04‒02
eighteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Intangible Investment and Firm Performance By Nathan Chappell; Adam B. Jaffe
  2. Firms and economic performance: A view from trade By Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
  3. Firm Dynamics and Multifactor Productivity: An Empirical Exploration By Pierre St-Amant; David Tessier
  4. Specializing in Generality: Firm Strategies When Intermediate Markets Work By Conti, Raffaele; Gambardella, Alfonso; Novelli, Elena
  5. Firm Wage Premia, Industrial Relations, and Rent Sharing in Germany By Boris Hirsch; Steffen Müller
  6. Cohesion Policy Meets Heterogeneous Firms By Loredana Fattorini; Mahdi Ghodsi; Armando Rungi
  7. The Role of Stakeholders in Corporate Governance: A View from Accounting Research By Ormazabal, Gaizka
  8. Does Taxation Stifle Corporate Investment? Firm-Level Evidence from ASEAN Countries By Serhan Cevik; Fedor Miryugin
  9. Does Managerial Experience in a Target Firm Matter for the Retention of Managers after M&As? By Kenjiro Hirata; Ayako Suzuki; Katsuya Takii
  10. Business investment, cost of capital and uncertainty in the United Kingdom — evidence from firm-level analysis By Melolinna, Marko; Tatomir, Srdan; Miller, Helen
  11. Firm Size Distributions and Cross-Country Labor Market Outcomes By Todd Schoellman; Jianyu Lu; Kevin Donovan
  12. Quantifying the Gap between Equilibrium and Optimum Under Monopolistic Competition By Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Suedekum
  13. Family firms: the problem of second-generation bosses By Renata Lemos; Daniela Scur
  14. Investment in human capital in post-Soviet countries: Why are firms not training more? By Kupets, Olga
  15. Relative Performance Feedback to Teams By William Gilje Gjedrem; Ola Kvaløy
  16. Internal and External Determinants of Audit Delay: Evidence from Indonesian Manufacturing Companies By Patricia Diana
  17. Firm Size, Concentration And The Labor Share By Lijun Zhu
  18. Collusion in mixed oligopolies and the coordinated effects of privatization By João Correia-da-Silva; Joana Pinho

  1. By: Nathan Chappell; Adam B. Jaffe
    Abstract: We combine survey and administrative data for about 13,000 New Zealand firms from 2005 to 2013 to study intangible investment and firm performance. We find that firm size and moderate competition is associated with higher intangible investment, while firm age is associated with lower intangible investment. Examining firm performance, we find that higher investment is associated with higher labour and capital input, higher revenue, and higher firm-reported employee and customer satisfaction, but not with higher productivity or profitability. The evidence suggests that intangible investment is associated with growth and 'soft' performance objectives, but not with productivity or profitability.
    JEL: D22 D24 L21
    Date: 2018–03
  2. By: Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
    Abstract: We use transaction-level US import data to compare firms from virtually all countries in the world competing in a single destination market. Guided by a simple theoretical framework, we decompose countries'market shares into the contribution of the number of firm-products, their average attributes (quality and efficiency) and heterogeneity around the mean. Our results show that the number of firm-products explains half of the variation in sales, while the remaining part is equally accounted for by average attributes and their dispersion. Quality is the main driver of firm heterogeneity (explaining between 75% and 100%). We then study how the distribution of firm-level characteristics varies across countries, and we explore some of its determinants. Countries with a larger market size tend to be characterized by a more dispersed distribution of firms'sales, especially due to heterogeneity in quality. These countries also tend to be more likely to host superstar firms, although this is not the only source of higher heterogeneity. To further explore the role of exceptional firms, we develop a novel decomposition that separates the contribution of heterogeneity from that of granularity. While individual firms matter, we find that heterogeneity is more important than granularity for explaining sales.
    Keywords: US Imports, Firm Heterogeneity, International Trade, Prices, Quality, Variety, Granularity.
    JEL: F12 F14
    Date: 2018–03
  3. By: Pierre St-Amant; David Tessier
    Abstract: There are indications that business dynamism has declined in advanced economies. In particular, firm entry and exit rates have fallen, suggesting that the creative destruction process has lost some of its vitality. Meanwhile, productivity growth has slowed. Some believe that lower entry and exit rates partly explain the weaker productivity growth. However, the evidence supporting, or invalidating, this view is scarce. In the present paper, we use multi-horizon causality tests and dynamic simulations with Canadian and US data to examine the following question: Do changes to entry and exit rates provide information about, or Granger-cause, future productivity? We do not find significant evidence that entry rates Granger-cause productivity. But we do find evidence that productivity causes entry rates. Using small models with economy-wide data (but not at the sectoral level), we find some evidence that exit rates cause productivity in both countries. This suggests that the decline in productivity growth is partly caused by a decline in the productivity-based exit selection process. However, when other variables, such as measures of the business cycle and the real effective exchange rate, are controlled for, the significance of exit rates in explaining productivity tends to fall. Specifically, business-cycle measures appear to cause both productivity and the exit rate. This suggests that firm dynamics are an intermediate, not an ultimate, cause of productivity growth.
    Keywords: Firm dynamics, Productivity
    JEL: M13 D24 O47
    Date: 2018
  4. By: Conti, Raffaele; Gambardella, Alfonso; Novelli, Elena
    Abstract: This paper studies the relationship between two decisions shaping the organizational configuration of a firm: whether to make the upstream resources more general and deployable to more markets (vs. keeping them tailored to a few markets), and whether to trade with downstream firms as an upstream supplier of intermediate products and services (vs. directly entering downstream markets). While the literature has looked at these two decisions separately, we argue that they depend on each other. This has the important implication that they can generate organizational complementarities, inducing firms to implement them simultaneously. We are motivated in particular by the observation that an increasing number of firms invest in general upstream resources and exploit them as upstream suppliers of intermediate services or products-an organizational configuration resulting from a strategy that we refer to as specialization in generality. Interestingly, the literature following the seminal work by Penrose (1959) and Nelson (1959) has mainly highlighted the use of general upstream resources to enter new downstream markets. We identify the supply and demand conditions under which specialization in generality is instead more likely to emerge: lack of prior downstream assets, on the supply side, and a roughly equal distribution of buyers across intermediate markets (a "broad" demand), on the demand side. We test our predictions using a sample of firms in the U.S. laser industry between 1993 and 2001. A regulatory shock that increases the value of trading relative to downstream entry provides the setting for a quasi-natural experiment, which corroborates our theoretical predictions.
    Date: 2018–03
  5. By: Boris Hirsch; Steffen Müller
    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
  6. By: Loredana Fattorini; Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Armando Rungi
    Abstract: In this paper, we empirically test the effects of the EU’s ‘cohesion policy’ on the performance of 273,500 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 the financing of ‘cohesion policy’ by the European Regional Development Fund (ERDF) aimed at direct investments in R&D correlates with an improvement of firms’ productivity in a region. Conversely, funding aimed 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: 2018–03
  7. By: Ormazabal, Gaizka
    Abstract: I review the empirical research on the role of stakeholders in corporate governance with an emphasis in contributions from the accounting literature. In particular, I focus on the following stakeholders: employees, the general public, the media, related firms, the government, private regulators, gatekeepers, and foreigners. This list does not include capital providers (shareholders and debt-holders), as the governance role of these stakeholders has already been covered by prior surveys in the academic literature. The discussion is structured around each stakeholder's incentives to influence managerial behavior, the mechanisms through which stakeholders act on managerial actions, as well as any concerns about this influence. All the analyzed stakeholders appear capable of influencing managerial actions to some extent, but the efficacy of stakeholders' monitoring role is controversial. Empirical research uncovers several factors that undermine stakeholders' incentives to discipline corporate managers. And more critically, in some cases stakeholders' incentives appear to be misaligned not only with shareholders' interests but also with the public interest. Taken together, the reviewed evidence suggests that the monitoring role involves a wide range of actors beyond the board of directors and capital providers. The review also points out that there is still much to learn about stakeholder monitoring.
    Date: 2018–03
  8. By: Serhan Cevik; Fedor Miryugin
    Abstract: This paper conducts a firm-level analysis of the effect of taxation on corporate investment patterns in member states of the Association of Southeast Asian Nations (ASEAN). Using large-scale panel data on nonfinancial firms over the period 1990–2014, and controlling for macro-structural differences among countries, we find a significant degree of persistence in firms’ net fixed investments over time, which vary with firm characteristics, such as size, sales, profitability, leverage, and age. Our analysis brings up interesting empirical results, including nonlinear patterns of behavior in firms’ capital investment decisions acrosss ASEAN countries. Concerning the main variable of interest, we find that a moderate level of taxation does not hinder business investment, but this effect turns negative as higher tax burden raises the user cost of capital and distorts resource allocations.
    Date: 2018–03–02
  9. By: Kenjiro Hirata; Ayako Suzuki; Katsuya Takii
    Abstract: This paper examines how managers' tenures in target firms influence their probability of retention as board members after mergers or acquisitions in Japanese firms. It develops a model that distinguishes several hypotheses about the effect of tenure on separation. Our results suggest that experience as an employee increases firm-specific skills, but at the expense of the ability to learn new skills. However, experience as a board member does not have this effect in Japanese firms, the structure of which is known to encourage specific skills. Further, we provide a novel method to correct for selection biases when using data on managers.Length: 46 pages
    Date: 2016–05
  10. By: Melolinna, Marko (Bank of England); Tatomir, Srdan (Bank of England); Miller, Helen (Institute for Fiscal Studies)
    Abstract: We use new firm-level estimates of the cost of capital and uncertainty to study the drivers of UK business investment in a neoclassical investment model. We construct firm-specific measures of the cost of capital and uncertainty and use new UK survey data to estimate firm-specific investment hurdle rates. There is substantial variation in the cost of capital and uncertainty faced by firms and we find both matter for investment. Firm heterogeneity might help explain the difference in firms’ investment paths shortly after the Great Recession. This suggests that, while common shocks, that is, aggregate uncertainty matters, it is also important to capture firm-specific uncertainty to better explain investment dynamics. Overall, between 2000 and 2015 investment responded relatively sluggishly to the cost of capital and more sharply to uncertainty, especially after the financial crisis. There are implications for monetary and macroeconomic policy. The relative importance of measures that alleviate uncertainty compared to changes in monetary policy rates could be larger than generally recognised.
    Keywords: Investment; micro data; panel regression; hurdle rates; cost of capital; uncertainty
    JEL: C23 D22 E22 E44
    Date: 2018–03–02
  11. By: Todd Schoellman (Arizona State University); Jianyu Lu (University of Notre Dame); Kevin Donovan (University of Notre Dame)
    Abstract: It is well-known that developing countries have many fewer large firms and that this has important implications for productivity. In this paper we collect and harmonize labor force surveys from 17 countries at different stages of development to document complementary facts about how the firm size distribution affects labor markets. Workers at large firms earn higher wages, have longer tenures, and enjoy more persistent employment in all countries. The firm size distribution accounts for a moderate fraction of cross-country variation in wages, tenure, and labor market churn. Viewed through the lens of a model of labor market churn, these facts jointly suggest that large firms provide better matches and that poor country labor markets suffer as a result of the missing large firms.
    Date: 2017
  12. By: Kristian Behrens (National Research University Higher School of Economics); Giordano Mion (University of Sussex); Yasusada Murata (National Research University Higher School of Economics); Jens Suedekum (Heinrich-Heine-Universitat Dusseldorf)
    Abstract: Equilibria and optima generally differ in imperfectly competitive markets. While this is well understood theoretically, it is unclear how large the welfare distortions are in the aggregate economy. Do they matter quantitatively? To answer this question, we develop a multi-sector monopolistic competition model with endogenous firm entry and selection, productivity, and markups. Using French and British data, we quantify the gap between the equilibrium and optimal allocations. In our preferred specification, inefficiencies in the labor allocation and entry between sectors, as well as inefficient selection and output per firm within sectors, generate welfare losses of about 6–10% of GDP.
    Keywords: monopolistic competition; welfare distortions; equilibrium versus optimum; inefficient entry and selection; inter- and intra-sectoral allocations
    JEL: D43 D50 L13
    Date: 2018
  13. By: Renata Lemos; Daniela Scur
    Abstract: Although family firms are widely praised as the 'backbone of the economy', their productivity is often hampered by weak management. Research by Daniela Scur and Renata Lemos provides new evidence on the performance of 'dynastic' family-owned firms and explores why those led by family bosses adopt fewer structured management practices.
    Keywords: CEO, firm productivity, management
    Date: 2018–03
  14. By: Kupets, Olga
    Abstract: Using STEP employer surveys data in Armenia, Azerbaijan, Georgia and Ukraine, this paper investigates how innovation, openness to international business contacts, use of computer at work and skills shortages affect employer-provided training in post-Soviet countries. It examines different types of training (less formal on-the-job training along with more formal in-house and external training) provided to white-collar or blue-collar workers. After controlling for a range of firm characteristics, we find a positive link between technological innovation and intensity of training of all types provided to white-collar workers that points to the technology-skills complementarity. Besides, the level of computer use at work is a significant determinant of the incidence and intensity of external training provided to white-collar and blue-collar workers.
    Keywords: employer-provided training, innovation, computerization, STEP employer survey, transition countries
    JEL: J24 M53 P36
    Date: 2018–03
  15. By: William Gilje Gjedrem; Ola Kvaløy
    Abstract: Between and within firms, work teams compete against each other and receive feedback on how well their team is performing relative to their benchmarks. In this paper we investigate experimentally how teams respond to relative performance feedback (RPF) at team level. We find that when subjects work under team incentives, then RPF on team performance increases the teams’ average performance by almost 10 percent. The treatment effect is driven by higher top performance, as this is almost 20% higher when the teams receive RPF compared to when the teams only receive absolute performance feedback (APF). The experiment suggests that top performers are particularly motivated by the combination of team incentives and team RPF. In fact, team incentives motivate significantly higher top performance than individual incentives when the team is exposed to RPF. We also find notable gender differences. Females respond negatively to individual RPF, but even more positively than males to team RPF.
    Keywords: teams, performance feedback, performance pay, experiment
    JEL: C91 M50 M52
    Date: 2018
  16. By: Patricia Diana (Universitas Multimedia Nusantara, Gading Serpong - Tangerang, 15810, Banten, Indonesia Author-2-Name: Maggy Author-2-Workplace-Name: Universitas Multimedia Nusantara, Gading Serpong - Tangerang, 15810, Banten, Indonesia)
    Abstract: Objective – This study aims to examine and explain the relationship between a company's internal factors such as profitability, solvency and audit committee, and external factors including complexity and size of public accounting firms, with audit delay. Methodology/Technique – The importance of financial information is, in part, due to its utility for assessment of company performance. Hence, financial information should be produced and reported as quickly as possible each year. Findings – This study finds that manufacturing companies with high debt levels and low profitability experience longer audit delay. Moreover, the results in this study show that debt level is the most influential and significant factor with a positive relationship to audit delay. Novelty – This study shows that profitability, the number of members on an audit committees and public accounting firm (KAP) size all have an insignificant negative relationship with audit delay. Further, complexity has an insignificant positive relationship with audit delay.
    Keywords: Profitability; Debt; Complexity; Audit Committees; Audit Delays.
    JEL: M42 M41
    Date: 2018–02–21
  17. By: Lijun Zhu (Washington University in St. Louis)
    Abstract: The labor share has been declining for the last 20 to 25 years in U.S. This paper investigates the effect of industrial concentration on the decline of labor share, and quantify this effect. We document two empirical facts. First, there is a positive and significant correlation between the increase in concentration, measured as share of sales by large firms in a sector, and decrease in sectoral labor share from 1997 to 2012. Second, in average, the labor share for large firms is lower than small firms within the same sector. We propose the following explanation: large firms have lower labor share since they use more capital intensive technologies, which is supported by firm level data which reveals that capital-labor ratio is positively and significantly correlated with firm size, measured as sales, assets, and/or employees.; Mergers & Acquisitions, due to weakening of Anti-trust laws since 1980s, transfers market share from small to large firms, increases concentration ratio, and decreases labor share. A firm dynamics model that features merger and acquisition is developed. Production technologies are endogenized, with more productive firms choosing more capital intensive technology. Our quantitative exercise shows that the proposed mechanism explains 30-40% of the decrease in labor share from 1997 to 2012.
    Date: 2017
  18. By: João Correia-da-Silva (CEF.UP and Faculdade de Economia, Universidade do Porto.); Joana Pinho (CEF.UP and Faculdade de Economia, Universidade do Porto.)
    Abstract: We study the sustainability of collusion in mixed oligopolies where private and public firms only differ in their objective: private firms maximize profits, while public firms maximize total surplus. If marginal costs are increasing, public firms do not supply the entire market, leaving room for private firms to produce and possibly cooperate by restricting output. The presence of public firms makes collusion among private firms harder to sustain, and maybe even unprofitable. As the number of private firms increases, collusion may become easier or harder to sustain. Privatization makes collusion easier to sustain, and is socially detrimental whenever firms are able to collude after privatization (which is always the case if they are sufficiently patient). Coordinated effects thus reverse the traditional result according to which privatization is socially desirable if there are many firms in the industry.
    Keywords: Collusion; Mixed oligopoly; Privatization; Coordinated effects
    JEL: D43 H44 L13 L41
    Date: 2017–07

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