nep-bec New Economics Papers
on Business Economics
Issue of 2018‒10‒15
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. Diverging Trends in National and Local Concentration By Rossi-Hansberg, Esteban; Sarte, Pierre-Daniel G.; Trachter, Nicholas
  2. Chinese Competition and Product Variety of Indian Firms By Pavel Chakraborty; Michael Henry
  3. Modeling Horizontal Shareholding with Ownership Dispersion By Duarte Brito; Einer Elhauge; Ricardo Ribeiro; Helder Vasconcelos
  4. Lazy Prices By Lauren Cohen; Christopher Malloy; Quoc Nguyen
  5. Is Austria’s Economy Locked-in in the CESEE Region? Austria’s Competitiveness at the Micro-level By Mahdi Ghodsi
  6. Assessing the Impact of Foreign Direct Investment on Domestic Manufacturing Firms’ Productivity: A Database for Portugal By Santos, Eleonora
  7. The role of international and domestic R&D outsourcing for firm innovation By María García-Vega; Elena Huergo
  8. Are habits important for the propagation of business cycle fluctuations in Bulgaria? By Vasilev, Aleksandar
  9. What happens when firms invest? Investment events and firm performance By Michał Gradzewicz
  10. Hiring through Startup Acquisitions: Preference Mismatch and Employee Departures By J. Daniel Kim

  1. By: Rossi-Hansberg, Esteban (Princeton University); Sarte, Pierre-Daniel G. (Federal Reserve Bank of Richmond); Trachter, Nicholas (Federal Reserve Bank of Richmond)
    Abstract: Using U.S. NETS data, we present evidence that the positive trend observed in national product-market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least seven years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration and a likely more competitive local environment.
    Keywords: national product-market concentration; local concentration
    JEL: E23 L11 R12
    Date: 2018–09–24
  2. By: Pavel Chakraborty; Michael Henry
    Abstract: Using detailed firm-product-year data across manufacturing industries in India, and exploiting the exogenous nature of China's entry into the WTO in 2001, we investigate the link between the impact of import penetration from China on the product variety of Indian manufacturing firms. We find: (i) robust and significant effect of product drop, with the effect coming only from competitive pressure in the domestic market; (ii) evidence of product drop or 'creative destruction' is robust only for the lower-half of the size distribution; (iii) firms drop their peripheral/marginal products and concentrate on the core ones; and (iv) our result is most strong for firms producing intermediate goods. For an average Indian manufacturing firm, 10 percentage point increase in India's Chinese share of imports in the domestic market reduces the product scope of firms by 1.7-4.4%. In contrast, we find positive effects on product scope as when firms are importing intermediate goods. We also find evidence of significant productivity effects and within-firm factor reallocation. Our results are consistent to a battery of robustness checks and IV estimation.
    Keywords: Chinese Competition, Product Drop, Domestic Market, Small Firms
    JEL: F1 F14
    Date: 2018
  3. By: Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia | Center for Advanced Studies in Management and Economics); Einer Elhauge (Harvard Law School); Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School); Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and Center for Economics and Finance)
    Abstract: The dominant formulation for modeling the objective function of managers of competing firms with horizontal shareholding has been critiqued for producing the result that, if non-horizontal shareholders are highly dispersed, managers would mimic the interests of horizontal shareholders even if they own a share of the firm that does not induce full control. We show that this issue can be avoided (while maintaining the remaining features of the dominant approach)with an alternative formulation that is derived from a probabilistic voting model that assumes shareholders with higher financial stakes will take greater interest in the managerial actions, which yields the result that managers maximize a control-weighted sum of the shareholders' relative returns.
    Keywords: Horizontal Shareholding, Ownership Dispersion, Manager Objective Function,Proportional Control, Banzhaf Control
    JEL: L13 L41
    Date: 2018–10
  4. By: Lauren Cohen; Christopher Malloy; Quoc Nguyen
    Abstract: Using the complete history of regular quarterly and annual filings by U.S. corporations from 1995-2014, we show that when firms make an active change in their reporting practices, this conveys an important signal about future firm operations. Changes to the language and construction of financial reports also have strong implications for firms’ future returns: a portfolio that shorts “changers” and buys “non-changers” earns up to 188 basis points in monthly alphas (over 22% per year) in the future. Changes in language referring to the executive (CEO and CFO) team, regarding litigation, or in the risk factor section of the documents are especially informative for future returns. We show that changes to the 10-Ks predict future earnings, profitability, future news announcements, and even future firm-level bankruptcies. Unlike typical underreaction patterns in asset prices, we find no announcement effect associated with these changes—with returns only accruing when the information is later revealed through news, events, or earnings—suggesting that investors are inattentive to these simple changes across the universe of public firms.
    JEL: G02 G12 G14
    Date: 2018–09
  5. By: Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper analyses the competitiveness of Austrian manufacturing industries by comparing the performance of Austrian firms with the Western European firms using recent estimates of TFP across Wider Europe (EU-28 plus Western Balkans) during the period 2007-2015. According to the TFP estimates, Austrian firms with larger turnovers, and less employment, in regions with less regional-industrial concentration of labour have become more competitive in terms of TFP. Using firm’s TFP and other characteristics aggregated by industries across Wider Europe, a gravity model for exports is estimated. Results show that larger trade across countries in the sample is driven by intra-firm trade, better efficiency of industries in terms of simple average of TFP growth of firms and more allocation of capital to more efficient firms. Comparing the actual values of exports from Austria to CESEE with the predicted values of the gravity model, I found that since 2012 excessive exports were directed to Western Europe rather than to CESEE. In a robustness check using unilateral exports value, these interesting findings also confirmed that a potential Austrian lock-in effect in the CESEE region reversed and trade diverged to the more competitive market of Western Europe.
    Keywords: firm performance, total factor productivity (TFP), gravity model, exports performance, lock-in effect
    JEL: D22 D24 F14 F15 F23 L25
    Date: 2018–10
  6. By: Santos, Eleonora
    Abstract: The lack of a database that integrates a significant number of the variables necessary to empirically investigate the existence of externalities from FDI in Portugal represents an important limitation in this area. This paper presents a new balanced panel dataset with a total of 5,045 manufacturing firms (domestic and foreign) for the period 1995-2007. We use multiple imputation in Stata 13.0 to construct a large dataset containing several indicators taken from AMADEUS, Quadros do Pessoal, EU Klems and OCDE databases, that allow us to congregate variables that measure three dimensions: total factor productivity; foreign presence and factors that may influence the productivity of domestic firms, such as indicators of firm efficiency and R&D activities. Our panel dataset provides a set of useful 15 indicators for the analysis of externalities from FDI in 4,685 domestic manufacturing firms. We perform correlation analysis by technological groups based on Pavitt’s Taxonomy. Results indicate that the foreign presence is positively and significantly correlated with the TFP growth. Moreover, the sign and magnitude of the coefficients for the control variables indicate that concentration, the stock of foreign knowledge and the technological gap potentially assist the TFP growth of domestic firms, but only in some technological groups.
    Keywords: firm-level data, productivity, FDI Externalities, Portugal
    JEL: F23 O30
    Date: 2017–09–30
  7. By: María García-Vega; Elena Huergo
    Abstract: Firms are increasingly outsourcing their high-tech services. Theory suggests that R&D outsourcing allows firms to specialize in core knowledge-intensive tasks, thereby increasing innovation, but R&D outsourcing may also undermine internal capabilities. Our goal is to empirically assess the relative importance of these two possibilities, distinguishing between national and international R&D outsourcing and firms’ exporting status. We examine R&D purchases of more than 10,000 Spanish firms for the period 2004-2014. We show that R&D outsourcing improves firm innovation. Product innovation rises mostly with domestic outsourcing, while process innovation increases with both domestic and international R&D outsourcing. In addition, we find that international outsourcing provides an extra premium, mostly for exporters. Our results contribute to a better understanding of how firms organize the production of knowledge and innovation.
    Keywords: R&D outsourcing; transaction cost economics; innovation; international versus domestic outsourcing; exporters.
    Date: 2018
  8. By: Vasilev, Aleksandar
    Abstract: We introduce internal consumption habits into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of internal consumption habits motive for the propagation cyclical fluctuations in Bulgaria. Allowing for habits in consumption improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework without habits, e.g., Vasilev (2009).
    Keywords: Business cycles,consumption habits,Bulgaria
    JEL: E32 E37
    Date: 2018
  9. By: Michał Gradzewicz (Narodowy Bank Polski and Warsaw School of Economics)
    Abstract: The aim of the study is to investigate the firm-level relationship between investment spikes and subsequent productivity developments. We used census data of Polish firms with employment above 9 persons, we measured investment spike and constructed a control sample for comparison. We showed various performance indicators before and after investment spike. We tested for the effects of a spike using generalized difference-in-difference models. The results suggest different effects for SMEs and larger companies. In smaller firms investment spike is associated with subsequent sales and employment expansion and lagged labor productivity rise, consistently with learning-by-doing model. TFP of smaller firms falls directly after a spike and only gradually rises thereafter. In larger firms investment spike also result in expansion of sales, but labor productivity is not improving relative to control group, despite a drop of employment. Moreover, capital deepening of larger firms results in significantly lower TFP, both in absolute and relative terms.
    Keywords: investment spike, productivity, TFP, efficiency, firm-level data, difference-in-difference
    JEL: D22 D24 L16 O3
    Date: 2018
  10. By: J. Daniel Kim
    Abstract: This paper investigates the effectiveness of startup acquisitions as a hiring strategy. Unlike conventional hires who choose to join a new firm on their own volition, most acquired employees do not have a voice in the decision to be acquired, much less by whom to be acquired. The lack of worker agency may result in a preference mismatch between the acquired employees and the acquiring firm, leading to elevated rates of turnover. Using comprehensive employee-employer matched data from the US Census, I document that acquired workers are significantly more likely to leave compared to regular hires. By constructing a novel peer-based proxy for worker preferences, I show that acquired employees who prefer to work for startups – rather than established firms – are the most likely to leave after the acquisition, lending support to the preference mismatch theory. Moreover, these departures suggest a deeper strategic cost of competitive spawning: upon leaving, acquired workers are more likely to found their own companies, many of which appear to be competitive threats that impair the acquirer’s long-run performance.
    Date: 2018–09

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