nep-bec New Economics Papers
on Business Economics
Issue of 2018‒11‒05
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Firm Scope and Spillovers from New Product Innovation: Evidence from Medical Devices By Matthew Grennan; Charu Gupta; Mara Lederman
  2. Causal Effects of Software Patents on Firm Growth: Evidence from a policy reform in Japan By YAMAUCHI Isamu
  3. High Growth Young Firms: Contribution to Job, Output and Productivity Growth By John Haltiwanger; Ron S. Jarmin; Robert Kulick; Javier Miranda
  4. The Inverted-U Relationship Between Credit Access and Productivity Growth By Philippe Aghion; Antonin Bergeaud; Gilbert Cette; Rémy Lecat; Hélène Maghin
  5. Age and High-Growth Entrepreneurship By Pierre Azoulay; Benjamin F. Jones; J. Daniel Kim; Javier Miranda
  6. Lending relationships and the collateral channel By Anderson, Gareth; Bahaj, Saleem; Chavaz, Matthieu; Foulis, Angus; Pinter, Gabor
  7. Industry and Financial Crises in Fragile and Zombie Firms: Does Leverage Matter? By Santi Novita
  8. Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown By Ryan A. Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
  9. Payment Technology Adoption and Finance : A Randomized-Controlled-Trial with SMEs By Dalton, Patricio; Pamuk, Haki; Ramrattan, R.; van Soest, Daan; Uras, Burak
  10. Misallocations go a long way: evidence from firm-level data By Jan Hagemejer; Peter; Joanna Tyrowicz
  11. Connecting to Power: Political Connections, Innovation, and Firm Dynamics By Ufuk Akcigit; Salomé Baslandze; Francesca Lotti
  12. Small Business Growth and Failure during the Great Recession: The Role of House Prices, Race & Gender By Ron Jarmin; CJ Krizan; Adela Luque
  13. Poverty, Competition, Democracy and Ownership: a General Equilibrium Model with Vertical Preferences * By Amani Kahloul; Rim Lahmandi-Ayed; Hejer Lasram
  14. Analyzing the Aftermath of a Compensation Reduction By Jason Sandvik; Richard Saouma; Nathan Seegert; Christopher Stanton
  15. Informal Employment Dynamics in Paraguay By Pablo Adrian Garlati Bertoldi
  16. Dominating Attributes Of Professed Firm Culture Of Holding Companies - Members Of The Bulgarian Industrial Capital Association By Kiril Dimitrov; Marin Geshkov
  17. Financial constraints matter : Empirical evidence on borrowing behavior, microfinance and firm productivity By M.A. Boermans; Daan Willebrands

  1. By: Matthew Grennan; Charu Gupta; Mara Lederman
    Abstract: When firms span related product categories, spillovers across categories become central to firm strategy and industrial policy, due to their potential to foreclose competition and affect innovation incentives. We exploit major new product innovations in one medical device category, and detailed sales data across related categories, to develop a causal research design for spillovers at the customer level. We find evidence of spillovers, primarily associated with complementarities in usage. These spillovers imply large benefits to multi- vs. single-category firms, accounting for nearly one quarter of sales in the complimentary category (equivalent to four percent of revenue in the focal category).
    JEL: D22 D4 D43 D62 I11 K21 L1 L13 L25 L38 L4 L5 M2 M21 O25 O31 O32 O33
    Date: 2018–10
  2. By: YAMAUCHI Isamu
    Abstract: The patentability of software dramatically expanded in the United States, European Union, and Japan during the 1990s. Using the exogenous policy change, this paper identifies the causal effect of filing software patents through the policy reform on the firms' subsequent growth. We find that small software firms as well as large firms increase software patent applications due to the expansion of patentable subject matter. However, the results show that such patent explosion has an insignificant effect on larger firms' performance, while it improves the subsequent performance of small and medium-sized enterprises (SMEs). We also find that the number of patent attorneys in the same prefecture has a significant effect only for small firms, which is the main driving factor of improving the firm's performance. These results suggest that broadening the scope of software patents does contribute to innovation, especially for SMEs with a small patent portfolio and business assets through decreasing the cost of patenting activity.
    Date: 2018–09
  3. By: John Haltiwanger; Ron S. Jarmin; Robert Kulick; Javier Miranda
    Abstract: Recent research shows that the job creating prowess of small firms in the U.S. is better attributed to startups and young firms that are small. But most startups and young firms either fail or don’t create jobs. A small proportion of young firms grow rapidly and they account for the long lasting contribution of startups to job growth. High growth firms are not well understood in terms of either theory or evidence. Although the evidence of their role in job creation is mounting, little is known about their life cycle dynamics, or their contribution to other key outcomes such as real output growth and productivity. In this paper, we enhance the Longitudinal Business Database with gross output (real revenue) measures. We find that the patterns for high output growth firms largely mimic those for high employment growth firms. High growth output firms are disproportionately young and make disproportionate contributions to output and productivity growth. The share of activity accounted for by high growth output and employment firms varies substantially across industries - in the post 2000 period the share of activity accounted for by high growth firms is significantly higher in the High Tech and Energy related industries. A firm in a small business intensive industry is less likely to be a high output growth firm but small business intensive industries don’t have significantly smaller shares of either employment or output activity accounted for by high growth firms.
    Date: 2017–02
  4. By: Philippe Aghion; Antonin Bergeaud; Gilbert Cette; Rémy Lecat; Hélène Maghin
    Abstract: In this paper, we identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation-based growth with credit constraints, where the above two counteracting effects generate an inverted-U relationship between credit access and productivity growth. Then, we test our theory on a comprehensive French manufacturing firmlevel dataset. We first show evidence of an inverted-U relationship between credit constraints and productivity growth when we aggregate our data at sectoral level. We then move to firm-level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experienced lower exit rates, particularly the least productive firms among them. To confirm our results, we exploit the 2012 Eurosystem's Additional Credit Claims (ACC) program as a quasi-experiment that generated exogenous extra supply of credits for a subset of incumbent firms.
    Keywords: credit constraint, firms, growth, interest rate, productivity.
    JEL: G21 G32 O40 O47
    Date: 2018
  5. By: Pierre Azoulay; Benjamin F. Jones; J. Daniel Kim; Javier Miranda
    Abstract: Many observers, and many investors, believe that young people are especially likely to produce the most successful new firms. We use administrative data at the U.S. Census Bureau to study the ages of founders of growth-oriented start-ups in the past decade. Our primary finding is that successful entrepreneurs are middle-aged, not young. The mean founder age for the 1 in 1,000 fastest growing new ventures is 45.0. The findings are broadly similar when considering high-technology sectors, entrepreneurial hubs, and successful firm exits. Prior experience in the specific industry predicts much greater rates of entrepreneurial success. These findings strongly reject common hypotheses that emphasize youth as a key trait of successful entrepreneurs.
    Date: 2018–04
  6. By: Anderson, Gareth; Bahaj, Saleem; Chavaz, Matthieu; Foulis, Angus; Pinter, Gabor
    Abstract: This paper shows that lending relationships insulate corporate investment from shocks to collateral values. We construct a novel database covering the banking relationships of UK firms, as well as those of their board members and executives. We find that the sensitivity of corporate investment to shocks to real estate collateral value is halved when the length of the bank-firm relationship increases from the 25th to the 75th percentile. This effect is substantially reduced for firms whose executives have a personal mortgage relationship with their firm’s bank. Our findings provide support for theories where collateral and private information are substitutes in mitigating credit frictions over the cycle.
    JEL: J1
    Date: 2018–05–15
  7. By: Santi Novita (Airlangga University, Jalan Airlangga 4 60286, Surabaya, Indonesia Author-2-Name: Bambang Tjahjadi Author-2-Workplace-Name: Airlangga University, Jalan Airlangga 4 60286, Surabaya, Indonesia Author-3-Name: Andry Irwanto Author-3-Workplace-Name: Airlangga University, Jalan Airlangga 4 60286, Surabaya, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - This paper shows how leverage affects firm's fragility and financial soundness during financial and industry crises. Methodology/Technique - Long term inefficient and zombie firms are explored through the effects of leverage in additional tests. Findings - There are two main results obtained from the sample of Indonesian non-financial firms from 2007 to 2016. First, leverage has a statistically significant correlation with firm's fragility. Second, leverage has an effect on firm's financial soundness during industry crisis. Novelty - Unlike the previous paper, this paper demonstrates a significant implication on the need to differentiate fragile firms and firms that are persistently inefficient, such as zombie firms.
    Keywords: Fragility; Zombie; Financial Soundness; Leverage; Industry Crisis; Financial Crisis.
    JEL: M20 M41
    Date: 2018–09–30
  8. By: Ryan A. Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
    Abstract: A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within-firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.
    Date: 2017–01
  9. By: Dalton, Patricio (Tilburg University, Center For Economic Research); Pamuk, Haki (Tilburg University, Center For Economic Research); Ramrattan, R.; van Soest, Daan (Tilburg University, Center For Economic Research); Uras, Burak (Tilburg University, Center For Economic Research)
    Abstract: What determines the adoption of electronic-payment instruments? Do these instruments impact business outcomes, in particular access to finance? To shed light on these questions, we conducted a Randomized-Controlled-Trial with Kenyan SMEs. Our experiment released barriers to adopt a novel payment instrument. We uncover that the adoption barriers were binding for a large portion of the firms and that firms' financial transparency interacted with the decision to adopt. After sixteen months, treated businesses were more likely to feel safe and had more loans. The impact on loans was especially pronounced for smaller size establishments, which also experienced a reduction in sales-volatility.
    Keywords: SME Finance; Transparency; Technology adoption; Lipa Na M-Pesa
    JEL: D22 G00 G21 O33
    Date: 2018
  10. By: Jan Hagemejer (Narodowy Bank Polski; University of Warsaw; Group for Research in Applied Economics (GRAPE)); Peter (University of Warsaw; Group for Research in Applied Economics (GRAPE)); Joanna Tyrowicz (Group for Research in Applied Economics (GRAPE); University of Warsaw)
    Abstract: We analyze the link between resource misallocation and subsequent long-run economic growth. We use two unique and novel sources of data for Poland and measure misallocation inherited from the period of central planning, i.e. period where input prices did not determine the use of inputs at firm, industry and country level. We assess sectoral, regional and cohort dimension of the inputs misallocation. We then show that undercapitalization was more prevalent that overcapitalization, and that it was due mostly to the firm and sector level variation in factor inputs. Given this insight, subsequent reallocation of the resources required shifting of inputs not only between firms, but also between sectors: a process which is relatively more prone to frictions due to specialization and information. When analyzing the link to the rate of growth once market mechanisms were reinstated, we find that regions with more misaligned firms (especially in terms of undercapitalization) experienced lower subsequent economic growth. This result proves highly robust, even three decades since the market mechanisms were reinstated.
    Keywords: misallocation, privatization, transition
    JEL: P31 D24 O47
    Date: 2018
  11. By: Ufuk Akcigit; Salomé Baslandze; Francesca Lotti
    Abstract: Do political connections affect firm dynamics, innovation, and creative destruction? We study Italian firms and their workers to answer this question. Our analysis uses a brand-new dataset, spanning the period from 1993 to 2014, where we merge: (i) firm-level balance sheet data; (ii) social security data on the universe of workers; (iii) patent data from the European Patent Office; (iv) the national registry of local politicians; and (v) detailed data on local elections in Italy. We find that firm-level political connections are widespread, especially among large firms, and that industries with a larger share of politically connected firms feature worse firm dynamics. We identify a leadership paradox: When compared to their competitors, market leaders are much more likely to be politically connected, but much less likely to innovate. In addition, political connections relate to a higher rate of survival, as well as growth in employment and revenue, but not in productivity – a result that we also confirm using a regression discontinuity design. We build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome certain market frictions. Our model highlights a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity.
    JEL: D70 O3 O4
    Date: 2018–10
  12. By: Ron Jarmin; CJ Krizan; Adela Luque
    Abstract: Using 2002-2011 data from the Longitudinal Business Database linked to the 2002 and 2007 Survey of Business Owners, this paper explores whether (through a collateral channel) the rise in home prices over the early 2000’s and their subsequent fall associated with the Great Recession had differential impacts on business performance across owner race, ethnicity and gender. We find that the employment growth rate of minority-owned firms, particularly black and Hispanic-owned firms, is more sensitive to changes in house prices than is that of their nonminority-owned counterparts.
    Date: 2016–11
  13. By: Amani Kahloul; Rim Lahmandi-Ayed (UR MASE - Modélisation et Analyse Statistique et Economique - ESSAIT - Ecole Supérieure de la Statistique et de l'Analyse de l'Information - Université de Carthage); Hejer Lasram (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)
    Abstract: We consider a general equilibrium model where individuals are at the same time workers, consumers and shareholders, with two possible ownership structures: egalitarian where all individuals share equally the firm's (firms') capital and concentrated where the owners of the firm(s) are negligible w.r.t the total population; and two possible market structures: Monopoly and Duopoly. The questions are, whether more competition generates more or less poverty for a given ownership structure; and whether a democratic choice between Monopoly and Duopoly leads to the alternative with less poverty. We consider four poverty indicators based respectively on Per Capita Income (PCI), Income Floor, Poorest and Income-Poor Population Size. When the ownership is concentrated, we show that Duopoly generates less poverty than Monopoly and that democratic choice between the two alternatives alleviates poverty according to all indicators apart from PCI. When the ownership is egalitarian, Duopoly may generate more or less poverty than Monopoly and democratic choice alleviates poverty regarding at least one poverty indicator and worsens poverty regarding at least another one, the four poverty indicators never converging. An empirical study on the effect of competition on poverty supports to some extent our theoretical findings. JEL Classification: I32, J4, L13. * We are grateful to Didier Laussel for his careful reading of a previous draft and his very helpful suggestions, and to Hafedh Bouakez for his interesting comments. Remaining imperfections are only ours.
    Keywords: Vertical differentiation,general equilibrium,poverty,democracy,competition,ownership structure
    Date: 2018–10–10
  14. By: Jason Sandvik; Richard Saouma; Nathan Seegert; Christopher Stanton
    Abstract: Firms rarely cut compensation, so little is known about the after-effects when compensation reductions do occur. We use commission reductions at a sales firm to estimate how work effort and turnover change. In response to an 18% decline in sales commissions, corresponding to a 7% decline in median take-home pay, we find turnover increases for the most productive workers. We detect limited effort responses. Turnover and effort responses do not differ based on workers' survey replies regarding expectations of firm fairness or future promotion. The findings indicate that adverse selection concerns on the extensive margin of retaining workers drive the empirical regularity that firms rarely reduce compensation.
    JEL: J3 J30 J41 J42
    Date: 2018–10
  15. By: Pablo Adrian Garlati Bertoldi
    Abstract: I characterize informal-formal employment transitions in Paraguay. Results indicate that some factors, such as education and firms size, improve workers' movement between informal and formal employment, and wage gains from moving into formality are modest. Workers who tend to stay indenitely informal are more likely to become unemployed or inactive. Estimates, based on a survival model, indicate that education and firm size highly increase informal-to-formal transitions, especially if workers have stayed informal for a long time. Older women have lower formal-to-informal transitions and, surprisingly, education plays no significant role. Mincer estimates point to high wages for formal workers, compared with informal, but that individual workers' wage gains from moving into formality are small.
    Keywords: informality, labor market dynamics, survival analysis, Paraguay
    JEL: C41 E26
    Date: 2018–10–09
  16. By: Kiril Dimitrov; Marin Geshkov
    Abstract: This article aims to outline the diversity of cultural phenomena that occur at organizational level, emphasizing the place and role of the key attributes of professed firm culture for the survival and successful development of big business organizations. The holding companies, members of the Bulgarian Industrial Capital Association, are chosen as a survey object as the mightiest driving engines of the local economy. That is why their emergence and development in the transition period is monitored and analyzed. Based on an empirical study of relevant website content, important implications about dominating attributes of professed firm culture on them are found and several useful recommendations to their senior management are made.
    Date: 2018–10
  17. By: M.A. Boermans; Daan Willebrands
    Abstract: This paper examines the effect of financial constraints on firm performance using a sample of small business owners who are client at a microfinance institution (MFI). In developing countries, a lack of access to finance is seen as a key obstacle to successful entrepreneurship and economic growth. However, empirical evidence on this is still fragmented and sparse. This study contributes to the literature by applying an alternative measure of financial constraints based on actual lending and borrowing behavior to test how borrowing affects firm productivity. We use survey data of 615 entrepreneurs from Tanzania to analyze the relationship between financial constraints and labour productivity. Using OLS regression and propensity score matching techniques the results show that financial constraints impede labour productivity and are important barriers to successful entrepreneurship. Further tests suggest that financial constraints matter regardless of the measurement method used, thereby comforting researchers in a fragmented field which applies a wide range of financial constraints variables.
    Keywords: Entrepreneurship, credit constraints, access to finance, firmperformance
    Date: 2018

This nep-bec issue is ©2018 by Vasileios Bougioukos. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.