nep-bec New Economics Papers
on Business Economics
Issue of 2018‒12‒17
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Sorting on Unobserved Skills into New Firms By Knutsson, Polina
  2. The Firm Dynamics of Business Cycles By Joao Ayres; Gajendran Raveendranathan
  3. Market Structure and Competition in Airline Markets By Ciliberto, Federico; Murry, Charles; Tamer, Elie
  4. Licensing with Free Entry By Johannes Muthers; Toker Doganoglu; Firat Inceoglu
  5. Heterogeneous Tax Sensitivity of Firm-level Investments By Egger, Peter; Erhardt, Katharina; Keuschnigg, Christian
  6. Short-time work in the Great Recession: firm-level evidence from 20 EU countries By Lydon, Reamonn; Mathä, Thomas Y.; Millard, Stephen
  7. Trade Exposure and Firms Markup Dynamics in the Food Industry By Curzi, D.; Garrone, M.; Olper, A.
  8. Profitability of Firms in EU Food Retailing By Finger, R.; Hirsch, S.; Lanter, D.
  9. Unions, Two-Tier Bargaining and Physical Capital Investment: Theory and Firm-Level Evidence from Italy By G. Cardullo; M. Conti; G. Sulis
  10. The Micro Origins of International Business-Cycle Comovement By Julian Di Giovanni; Andrei Levchenko; Isabelle Mejean
  11. Measuring Technological Innovation over the Long Run By Bryan Kelly; Dimitris Papanikolaou; Amit Seru; Matt Taddy
  12. An AHP Approach toward Evaluating IoT Business Ecosystem in Korea By Choi, Jaewon; Kim, Seongcheol
  13. The Effect of Family Ownership, Control and Management on Corporate Debt Structure– Evidence from Panel Fractional Data By Mário Augusto; José Murteira; António Pedro Pinto
  15. Motherhood and the Gender Productivity Gap By Yana Gallen

  1. By: Knutsson, Polina (Department of Economics, Lund University)
    Abstract: Human capital features prominently in theoretical work on post-entry performance of new firms. Empirical analysis has, however, to a large extent overlooked the unobserved component of human capital focusing on years of education or labor market experience. This paper adds to the literature on worker characteristics and post-entry firm performance by putting the unobserved quality of workers in the center of analysis. I find strong evidence that new firms on average employ workers of lower unobserved quality relative to incumbent firms. Among new firms workers of higher unobserved quality are overrepresented in spin-offs and incorporated new firms. I further show that unobserved quality of workers is important for the post-entry performance of firms as it is a strong predictor of new firm survival.
    Keywords: Human capital; occupational choice; sorting; new firms
    JEL: J24 J60 M13
    Date: 2018–11–29
  2. By: Joao Ayres; Gajendran Raveendranathan
    Abstract: We use firm dynamics statistics on employment by age, entry, exit, and job flows to identify sources of business cycle fluctuations in the U.S. economy since 1980. We extend the Hopenhayn (1992) firm dynamics model by incorporating capital and debt accumulation to the firm’s problem and savings to the consumer’s problem. Analyzing the implications of unexpected productivity, credit, labor wedge, and investment wedge shocks for firm dynamics statistics, we show that (a) productivity shock accounts for the 1990-91 and 2001 recessions, and (b) productivity and credit shocks jointly account for the 1980-82 and 2007-09 recessions.
    Keywords: firm dynamics, business cycles.
    JEL: D21 D22 E24 E32
    Date: 2018–12
  3. By: Ciliberto, Federico; Murry, Charles; Tamer, Elie
    Abstract: We provide an econometric framework for estimating a game of simultaneous entry and pricing decisions in oligopolistic markets while allowing for correlations between unobserved fixed costs, marginal costs, and demand shocks. Firms' decisions to enter a market are based on whether they will realize positive profits from entry. We use our framework to quantitatively account for this selection problem in the pricing stage. We estimate this model using cross-sectional data from the US airline industry. We find that not accounting for endogenous entry leads to overestimation of demand elasticities. This, in turn, leads to biased markups, which has implications for the policy evaluation of market power. Our methodology allows us to study how firms optimally decide entry/exit decision in response to a change in policy. We simulate a merger between American and US Airways and we find that the post-merger market structure and prices depend crucially on how we model the characteristics of the post-merger firm as a function of the pre-merger firms' characteristics. Overall, the merged firm has a strong incentive to enter new markets; the merged firm faces a stronger threat of entry from rival legacy carriers, as opposed to low cost carriers; and, post-merger entry mitigates the adverse effects of increased concentration.
    Keywords: Entry; market power; market structure; merger; multiple equilibria; oligopoly; Self-selection
    JEL: C35 C51 D43 L13 L41 L44
    Date: 2018–11
  4. By: Johannes Muthers; Toker Doganoglu (University Würzburg); Firat Inceoglu (University Würzburg)
    Abstract: We introduce a fairly general licensing model with an endogenous industry structure – in terms of number of active firms – and general licensing contracts. We show that when the patentee can employ contracts that can condition on market entry or price, it can implement an outcome that yields monopoly profits by awarding the license to a single firm. Furthermore, when the patentee can only use contracts based on the quantities of the licensees, it still captures the entire market via a single licensee, albeit not at the monopoly price. Commonly assumed two-part tariff contracts cannot duplicate this last outcome and yield lower profits. We discuss the welfare implications of various contractual schemes.
    Keywords: Patent licensing, free entry, quantity competition.
    JEL: D45 K11 L11 L13 L21 L41
    Date: 2018–09
  5. By: Egger, Peter; Erhardt, Katharina; Keuschnigg, Christian
    Abstract: This paper introduces a stylized theoretical framework to identify five different firm types depending on their financial situation and their ownership structure. Based on these firm types, the model explains the heterogeneous tax sensitivity of firm-level investments. Guided by the theoretical model, we empirically identify these partly latent firm types using a threshold estimation approach. The empirical analysis uses a large firm database for 17 countries allowing for a quantification of the regime-specific investment responses to taxation. We find important differences in the tax sensitivity of investment across firm-types for dividend as well as for corporate taxation. The impact of corporate taxation is up to 70% higher for entrepreneurial firms than for managerial firms. In contrast, dividend taxation has a comparable negative effect for cash-constrained managerial firms and entrepreneurial firms but no significant impact on their unconstrained counterparts.
    Keywords: Access to capital; corporate tax; Firm Heterogeneity; Manager-shareholder conflicts; Personal taxes
    JEL: D22 G32 H25 L21
    Date: 2018–11
  6. By: Lydon, Reamonn; Mathä, Thomas Y.; Millard, Stephen
    Abstract: Using firm-level data from a large-scale European survey among 20 countries, we analyse the determinants of firms using short-time work (STW). We show that firms are more likely to use STW in case of negative demand shocks. We show that STW schemes are more likely to be used by firms with high degrees of firm-specific human capital, high firing costs, and operating in countries with stringent employment protection legislation and a high degree of downward nominal wage rigidity. STW use is higher in countries with formalised schemes and in countries where these schemes were extended in response to the recent crisis. On the wider economic impact of STW, we show that firms using the schemes are significantly less likely to lay off permanent workers in response to a negative shock, with no impact for temporary workers. Relating our STW take-up measure in the micro data to aggregate data on employment and output trends, we show that sectors with a high STW take-up exhibit significantly less cyclical variation in employment. JEL Classification: C25, E24, J63, J68
    Keywords: crisis, firms, recession, short-time work, survey, wages
    Date: 2018–12
  7. By: Curzi, D.; Garrone, M.; Olper, A.
    Abstract: By examining the roles played by imports of intermediate inputs and final goods separately, this paper investigates the relationship between trade exposure, firm-level markups and industry markup dispersion. We exploit a rich micro-level dataset of French food companies from 2001 to 2013 and find a negative (positive) effect of an increased output (input) import competition on firm-level markups. This result is consistent with the recent predictions of the international trade literature. A similar pattern holds when considering the relationship between trade exposure and industry markup dispersion. We provide a theoretical intuition behind these findings, which represent an important insight introduced by our analysis. Acknowledgement :
    Keywords: International Relations/Trade
    Date: 2018–07
  8. By: Finger, R.; Hirsch, S.; Lanter, D.
    Abstract: This article investigates the drivers and the persistence of firm profits in EU food retailing thereby generating insights for the derivation of managerial strategies as well as antitrust policies in this highly dynamic sector. Using a dynamic panel model, a sample of 13,256 food retailers from five EU countries France, Poland, Spain, Sweden, and the UK is analyzed over the period 2006 to 2014. Our findings indicate that profits in food retailing are more persistent than in other retail sectors presumably caused by high bargaining power towards processors and entry barriers that lead to less pronounced competition. The results also show that profits are influenced by firm- and industry-specific characteristics. While industry concentration and firm size positively influence profitability, firm age and financial risk tend to have a negative impact. Acknowledgement :
    Keywords: Agribusiness
    Date: 2018–07
  9. By: G. Cardullo; M. Conti; G. Sulis
    Abstract: In this paper we present a search and matching model in which firms invest in sunk capital equipment. By comparing two wage setting scenarios, we show that a two-tier bargaining scheme, where a fraction of the salary is negotiated at firm level, raises the amount of investment per worker in the economy compared to a one-tier bargaining scheme, in which earnings are entirely negotiated at sectoral level. The model's main result is consistent with the positive correlation between investment per worker and the presence of a two-tier bargaining agreement that we find in a representative sample of Italian firms.
    Keywords: unions;investment;hold-up;Two-Tier Bargaining;Control Function
    Date: 2018
  10. By: Julian Di Giovanni (ICREA - Institució Catalana de Recerca i Estudis Avançats [Barcelona] - UB - Universitat de Barcelona - FCRI - Fundació Catalana per a la Recerca i la Innovació [Barcelona] - ICREA, CREI - Centre de Recerca en Economia Internacional - Universitat Pompeu Fabra [Barcelona], CEPR - Center for Economic Policy Research - CEPR); Andrei Levchenko (University of Michigan [Ann Arbor], CEPR - Center for Economic Policy Research - CEPR, National Bureau of Economic Research - National Bureau of Economic Research); Isabelle Mejean (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR)
    Abstract: This paper investigates the role of individual firms in international business-cycle comovement using data covering the universe of French firm-level value added and international linkages over the period 1993-2007. At the micro level, trade and multinational linkages with a particular foreign country are associated with a significantly higher correlation between a firm and that foreign country. The impact of direct linkages on comovement at the micro level has significant macro implications. Without those linkages the correlation between France and foreign countries would fall by about 0.098, or one-third of the observed average correlation of 0.291 in our sample of partner countries. (JEL F14, F23, F44, F62, L14) Countries that exhibit greater bilateral trade and multinational production linkages have more correlated business cycles (Frankel and Rose 1998; Kleinert, Martin, and Toubal 2015). While the empirical literature has repeatedly confirmed the trade-comovement relationship in the data, its meaning is not well understood, either empirically or quantitatively. Taken at face value, the positive association between bilateral trade and multinational linkages and comovement is often interpreted as evidence of transmission of shocks across countries through those linkages. The empirical literature has faced two related challenges. The first is the critique by Imbs (2004) that countries that trade more with each other are similar in other ways, and thus subject to common shocks. Under an extreme version of this view, the trade linkage variable in the Frankel-Rose specification does not reflect the
    Date: 2018–01
  11. By: Bryan Kelly; Dimitris Papanikolaou; Amit Seru; Matt Taddy
    Abstract: We use textual analysis of high-dimensional data from patent documents to create new indicators of technological innovation. We identify significant patents based on textual similarity of a given patent to previous and subsequent work: these patents are distinct from previous work but are related to subsequent innovations. Our measure of patent significance is predictive of future citations and correlates strongly with measures of market value. We identify breakthrough innovations as the most significant patents – those in the right tail of our measure – to construct indices of technological change at the aggregate, sectoral, and firm level. Our technology indices span two centuries (1840-2010) and cover innovation by private and public firms, as well as non-profit organizations and the US government. These indices capture the evolution of technological waves over a long time span and are strong predictors of productivity at the aggregate, sectoral, and firm level.
    JEL: E22 E32 N1 O3 O4
    Date: 2018–11
  12. By: Choi, Jaewon; Kim, Seongcheol
    Abstract: The Internet of Things (IoT) has been a major buzz word and is accepted as a future direction of ICT. One of the market's challenges is the formation of healthy business ecosystems. As IoT business inherently encompasses convergence of distinct industries, forming a healthy business ecosystem is challenging. However, there is only limited amount of studies concerning the business ecosystem evaluation. Thus, the current study intends to develop a viable model for assessing the healthiness of IoT business ecosystems. Factors affecting the IoT business ecosystems are suggested in the form of hierarchical decision tree, of which the first layer consists of stability, productivity, and diversity. In the second layer, 7 sub-criteria were presented under each major evaluation factor. Consequently, the health of three Korean IoT business ecosystems were assessed. Using the AHP method, the perceptions of 51 IoT researchers were analyzed. The results showed that the service oriented IoT business ecosystem alternative was the healthiest. Telecom firm's ecosystem showed well distributed capabilities in every factor. Meanwhile, tech-oriented firm's technological strength did not compensate its lack of value creation. Detailed theoretical, practical implications, and limitations of this study are also discussed.
    Keywords: Internet of things,IoT,business ecosystem,AHP,multi-criteria decision model,business ecosystem health
    Date: 2018
  13. By: Mário Augusto (CeBER and Faculdade de Economia, Universidade de Coimbra); José Murteira (; António Pedro Pinto (CI&DETS and Escola Superior de Tecnologia e Gestão de Viseu, Instituto Politécnico de Viseu)
    Abstract: The present study examines the impact of family involvement on the debt structure of family businesses. Family corporate involvement is considered in three related but distinct dimensions: capital ownership, firm’s management and corporate control. The marginal effect of each of these three dimensions is specified as a unique regression parameter in a conditional mean model for the proportion of medium- plus long-term debt to total debt. This general strategy calls for an appropriate modelling and estimation approach, taking due account of the response variable’s inherent fractional definition and consequential nonlinear functional form of its conditional expectation, given covariates. Such an approach, combining a probit model for the equation of interest with a control function estimation method, is applied to a panel data set on Portuguese family businesses. Estimation results confirm the uniqueness of the impact of each of the three considered dimensions of families’ corporate involvement on the debt structure of firms.
    Keywords: Family firms; Management and control considerations; Debt maturity structure; Panel fractional data.
    JEL: G3 C23 C25
    Date: 2018–11
  14. By: Progress Hove Sibanda (North West University)
    Abstract: The importance of sharing strategic information among supply chain member firms as a practice can never be over emphasised. However, this practice regularly involves a cost and can make firms to be hesitant to share their important information with their supply chain partners. The purpose of this study was to examine the role of strategic information sharing as a practice in the creation of supply chain competence among firms. A positivist approach that allowed a quantitative research method in data collection was used in this study. Data from a sample of 280 firm owners/managers from all the industries of South Africa?s nine provinces was used for the final data analysis of this research. A principal component analysis was performed for factor reduction and dimensional groupings using SPSS 24 software. Multiple Regression analysis was performed using SPSS 24 software, and was used for hypotheses tests. The principal finding of this study reported a weak positive influence of strategic information sharing on supply chain competence. This implies that the sharing of important information, if done through the correct structures and technologies, has the ability to create a unique competitive edge for the entire supply chain through collective learning. However, firms need to consider factors such as balancing the bargaining power, aligning roles with incentives as well as developing strong trust before engaging in developing a supply chain competence using strategic information as a tool.
    Keywords: collective learning, supply chain competence, strategic information sharing, South Africa
    Date: 2018–10
  15. By: Yana Gallen (Harris School of Public Policy)
    Abstract: Using Danish matched employer-employee data, I compare the relative pay of men and women to their relative productivity as measured by production function estimation. I find that the gender “productivity gap” is 8 percent, implying that almost two thirds of the residual gender wage gap is due to productivity differences between men and women. Motherhood plays an important role, yet it also reveals a puzzle: the pay gap for mothers is entirely explained by productivity, whereas the gap for non-mothers is not. In addition, the decoupling of pay and productivity for women without children happens during their prime-child bearing years. These estimates are robust to a variety of specifications for the impact of observables on productivity, and robust to accounting for endogenous sorting of women into less productive firms using a control-function approach. This paper also provides estimates of the productivity gap across industries and occupations, finding the same general patterns for mothers compared to women without children within these subgroups.
    Keywords: discrimination, wage gap, Labor Productivity
    JEL: J71 J24 J31
    Date: 2018–12

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.