nep-bec New Economics Papers
on Business Economics
Issue of 2019‒01‒14
eighteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Influence of Corporate Strategy for Multi-Channel Network on Firm Performance: Make, Buy, or Ally? By Chang, Seoyon; Kim, Seongcheol
  2. Optimal vs Satisfactory Transparency: The Impact of Global Macroeconomic Fluctuations on Corporate Competitiveness By Oxelheim, Lars
  3. Longitudinal Linking of Enterprises in the LBD and SSL By Robert C. Dent; Benjamin W. Pugsley; Harrison Wheeler
  4. On the difficulty of collusion in the presence of a more efficient outsider By Guillaume Cheikbossian; Philippe Mahenc
  5. Mixed Market Structure, Competition and Market Size: How Does Product Mix Respond? By Aya Elewa
  6. Does board gender diversity influence firm profitability? A control function approach By Rey Dang; L’Hocine Houanti; Krishna Reddy; Michel Simioni
  7. Sources of Heterogeneity in Labor Productivity and Total Factor Productivity in Egyptian Manufacturing By Abeer Elshennawy; Mohamed Bouaddi
  8. Boundary spanner relational behavior and inter-organizational control in supply chain relationships By Henri Dekker; Carole Donada; Caroline Mothe; Gwenaëlle Nogatchewsky
  9. Do More Productive Firms Pay Workers More? Evidence from Egypt By Caroline Krafft; Ragui Assaad
  10. The Origins of Firm Heterogeneity: A Production Network Approach By Andrew B. Bernard; Emmanuel Dhyne; Glenn Magerman; Kalina Manova; Andreas Moxnes
  11. Culture and collateral requirements: Evidence from developing countries By Panagiota Papadimitri; Fotios Pasiouras; Menelaos Tasiou
  12. The Nexus Between Business-Investment Climate and Firm Performance in the Middle East and North Africa (MENA) Region By Eleftherios Giovanis; Oznur Ozdamar
  13. Are Habits Important for the Propagation of Business Cycle Fluctuations in Bulgaria? By Aleksandar Vasilev
  14. Monetary Policy, Corporate Finance and Investment By James Cloyne; Clodomiro Ferreira; Maren Froemel; Paolo Surico
  15. Advancing Conceptualization of University Entrepreneurship Ecosystems: The Role of Knowledge-based Entrepreneurial Firms By Link, Albert; Sarala, Riikka
  16. Growth paths and routes to exit: ‘Shadow of Death’ effects for new firms in Japan By Alex Coad; Masatoshi Kato
  17. Technology, Market Structure and the Gains from Trade By Giammario Impullitti; Omar Licandro; Pontus Rendahl
  18. A Progressive Consumption Tax - an Important Instrument for Stabilizing Business Cycles, or just an Exotic Idea? By Aleksandar Vasilev

  1. By: Chang, Seoyon; Kim, Seongcheol
    Abstract: The attention towards Multi-Channel Networks (MCNs) is notable in the media sector. Many firms adopt MCN business to capture the potential value created by new media trend. Consequently, the new investment, merger and acquisition (M&A), and in-house establishment trend is shaking up the media market. However, the short history of MCNs is yet reflected in the academia. Especially, there is limited literature on the industry-level analysis of MCNs. To fill the gap, this research attempts to understand how the firms are participating in the MCN industry across time, sectors, and regions. In other words, the firms' corporate strategies on the MCN adoption are analyzed. This paper classifies the type of strategic decision by Make, Buy, and Ally, then evaluates the influence of three strategic decisions on firm performance. It further investigates whether a first mover advantage exists in the MCN industry. To examine the firm performance, two accounting-based measures are employed: return on asset (ROA) and Tobin's Q. Research results indicate that Make leads better firm performance than Buy and Ally. In addition, the first mover advantage is confirmed in the MCN industry. Besides, some descriptive analyses of the MCN industry are presented in the study. As preliminary research examining the firms' corporate strategy on the adoption of MCN business, this paper provides meaningful implications for both practitioner and academia.
    Keywords: Multi-Channel Network (MCN),Corporate strategy,Strategic alliance,Merger and acquisition (M&A),In-house establishment,First mover advantage,Firm performance,Return on assets (ROA),Tobin's Q
    Date: 2018
  2. By: Oxelheim, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: Being able to separate temporary global macroeconomic influences – caused by fluctuations in exchange rates, interest rates and inflation – from intrinsic performance – related to a superior product, production process or management - is crucial to the assessment of the development of a firm’s competiveness. Against that background, the paper analyzes institutions’ role in making firms supply outside shareholders with relevant information corresponding to satisfactory transparency from the shareholder perspective. Based on a sample of the 100 largest public European firms it is found no firm provided information to the level deemed satisfactory by the outside shareholder. One explanation may be that optimal transparency for the firm does not equal satisfactory transparency for the outside shareholder. However, the implementation of IFRS/IAS 1 in the EU as of 2005, and a company’s international cross-listing activities exhibit associations with better supply of information and a narrowing of the gap. Shareholders in the Anglo-Saxon corporate governance system are provided with more relevant information than those in other corporate governance systems. The paper adds to the literature on the role of institutions in international corporate governance, with the particular focus on information asymmetries in an international business context.
    Keywords: Macroeconomic fluctuations; Intrinsic performance; International financial reporting standards; Corporate information disclosure; Optimal transparency; Satisfactory transparency; Corporate governance systems; International cross-listing
    JEL: F23 F37 G18 G32 G38 L25 M21 M41 M48
    Date: 2018–12–20
  3. By: Robert C. Dent; Benjamin W. Pugsley; Harrison Wheeler
    Abstract: We propose a new heuristic methodology for constructing longitudinal firm identifiers from the LBD and SSL databases. In addition to using information encoded in the Flag A variable, our method uses the existence of firm ids and multiunit status before and after a firm id change to infer various types of reorganizations. We distinguish can spinoffs, acquisitions, continuing firms after divestiture, and other reorganizations. In the cases of continuing or reorganizing firms, we preserve the longitudinal linkage copy constructing a longfirm id variable that is constant over the entire firm spell. A longfirm id flag variable classifies the disposition of each switch in firm id and can be used to construct alternative identifiers. Tests of the classification system appear reasonable, but there is scope for further refinement.
    Date: 2018–07
  4. By: Guillaume Cheikbossian (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Philippe Mahenc (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: We study the ability of several identical firms to collude in the presence of a more efficient firm, which does not take part in their collusive agreement. The cartel firms adopt stick-and-carrot strategies, while the efficient firm plays its one-period best-response function, regardless of the history of play. We characterize the most collusive symmetric punishment, which maximizes the scope for collusion. We then find that either a lower cost disadvantage or a smaller cartel size facilitates collusion. Finally, we compare our results with those obtained in the standard setup where all firms participate in the collusive agreement.
    Keywords: cost asymmetry,optimal punishments,outsider,repeated game,tacit collusion,outsider JEL classification code: C73,D43,L13
    Date: 2018–05
  5. By: Aya Elewa (Paris School of Economics)
    Abstract: Assuming a double heterogeneity; within industry firm heterogeneity and within firm product heterogeneity, this paper investigates how multiproduct firms respond to tougher competition and greater market size across destinations. Building a theoretical model where monopolistically competitive and oligopolistic firms coexist in the same market, the paper studies how an increase in market size affects both types of firms’ behavior. The model shows that the final impact of bigger market size on the product-mix of multiproduct firms depends on the level of fixed entry costs. For low level of entry costs, big firms increase their product-mix when they export to larger markets as they benefit from scope economies. Yet, when fixed costs are prohibitive, a larger market induces firms to skew their export sales toward their core product. Very strong confirmation of this non-monotonic effect of market size was found for Egyptian exporters across export market destinations.
    Date: 2018–10–28
  6. By: Rey Dang (LaRGE Research Center, Université de Strasbourg); L’Hocine Houanti; Krishna Reddy; Michel Simioni
    Abstract: We investigate the relation between board gender diversity and firm profitability using the control function (CF) approach recently suggested by Wooldridge (2015). The CF method takes account of the problem of endogenous explanatory variables that have potential to bias the results. Using a sample of firms that made up the S&P 500 over the period 2004-2015, we find that the presence of women on corporate boards (measured either by the percentage of female directors on corporate boards or the Blau index of heterogeneity) has a positive and significant (at the 1% level) effect on firm profitability (measured by the return on assets). We compare our results to more traditional approaches (such as pooled OLS or the fixed-effects model). Through this study, we shed light on the effect of women on corporate boards on firm performance, as it is still a controversial issue (Post and Byron, 2015).
    Keywords: Women, board of directors, econometrics, control function, firm performance.
    JEL: G30 G34 J1
    Date: 2019
  7. By: Abeer Elshennawy (The American University in Cairo); Mohamed Bouaddi
    Abstract: Egypt Ranking in the World Competitiveness Report deteriorated between 2004 and 2017. Boosting competitiveness requires reforms on several important fronts, but raising labor productivity and TFP are perhaps the most pressing. This paper identifies the correlates of both labor productivity and TFP at the firm level in Egypt’s in manufacturing sector using Economic Census data for the year 2012/2013.We find significant heterogeniety in both Labor productivity and TFP between firms. By econometirically dicotomizing firms into low and high productivity regimes, we find that the correlates of productivity differ between these two sets of firms. By identifying the sources of heterogeneity between low and high productivity firms we show that there is considerable scope for the former to catch up with the lattter based on factors that are internal to the firm .However, the literature does not offer much insights as to how high productivity firms can increase their productivity further.
    Date: 2018–12–26
  8. By: Henri Dekker; Carole Donada (ESSEC Business School - Essec Business School); Caroline Mothe (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc); Gwenaëlle Nogatchewsky (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Boundary spanner relational skills are considered critical in the successful management of buyer-supplier relationships and may help avoiding high costs of more formal inter-organizational controls. Yet, the influence of partners' boundary spanners on effective supply chain collaboration has had much less inquiry than the influence of broader inter-organizational controls. We use survey data of 200 buyer-supplier relationships to examine how these individual and organizational control mechanisms influence the performance effects of interfirm collaborations that vary in scope of activities undertaken. Findings show that collaborative scope as well as boundary spanner relational skills and inter-organizational controls are positively associated with performance. The effect of collaborative scope on firm performance, however, also depends on both mechanisms but in opposite directions: while the influence of collaborative scope on performance is enhanced by inter-organizational controls, a partner's boundary spanner relational skills has a negative moderating effect, indicating that such skills contribute more to the effective management of collaborations of narrow scope than those of broader scope.
    Keywords: firm performance,collaboration scope,buyer-supplier relations,boundary spanners,relational skills,inter-organizational control
    Date: 2018–11
  9. By: Caroline Krafft (St. Catherine University); Ragui Assaad
    Abstract: Theoretically, in perfectly competitive markets with full information, marginal productivity of labor and workers’ wages should be equalized across firms and wages should not be linked to the productivity of a firm. Empirically examining the relationship between wages and productivity across various types of firms can reveal important deviations from perfect competition and full information. This paper investigates the wage-productivity relationship in the case of Egypt. We find that wages are related to firm productivity, even after accounting for worker quality. The relationship between wages, productivity, and firm characteristics suggests that the association is due in part to imperfect competition and in part to the use of efficiency wages by employers.
    Date: 2018–09–18
  10. By: Andrew B. Bernard; Emmanuel Dhyne; Glenn Magerman; Kalina Manova; Andreas Moxnes
    Abstract: This paper quantifies the origins of firm size heterogeneity when firms are interconnected in a production network. Using the universe of buyer-supplier relationships in Belgium, the paper develops a set of stylized facts that motivate a model in which firms buy inputs from upstream suppliers and sell to downstream buyers and final demand. Larger firm size can come from high production capability, more or better buyers and suppliers, and/or better matches between buyers and suppliers. Downstream factors explain the vast majority of firm size heterogeneity. Firms with higher production capability have greater market shares among their customers, but also higher input costs and fewer customers. As a result, high production capability firms have lower sales unconditionally and higher sales conditional on their input prices. Counterfactual analysis suggests that the production network accounts for more than half of firm size dispersion. Taken together, our results suggest that multiple firm attributes underpin their success or failure, and that models with only one source of firm heterogeneity fail to capture the majority of firm size dispersion.
    Keywords: production networks, productivity, firm size heterogeneity
    JEL: F10 F12 F16
    Date: 2019–01
  11. By: Panagiota Papadimitri (Portsmouth Business School); Fotios Pasiouras (Montpellier Business School); Menelaos Tasiou (Portsmouth Business School)
    Abstract: We study the relationship between culture and the use of collateral in corporate borrow- ing. Using a dataset of over 14,000 firms from 70 transition and developing countries, we find evidence that the likelihood to pledge collateral is lower in countries with higher un- certainty avoidance and corporate ethical behavior. In contrast, long-term orientation and individualism enhance the likelihood to use collateral. These results hold when using sub- samples and further controls for various firm and country-specific attributes. Additional analysis reveals that culture influences not only the likelihood to pledge collateral but also its type (movable versus non-movable) and its value relative to the value of the loan.
    Keywords: Culture, Ethics, Collateral
    JEL: G21 G32
    Date: 2019–01–09
  12. By: Eleftherios Giovanis (Manchester Metropolitan University); Oznur Ozdamar
    Abstract: Business and investment climate indicators are relations between the public and private sectors. They may take the form of formal, regular, and informal interactions and their scope can include the economy as a whole or they may target specific types of firms in specific sectors or certain policy processes. Effective business and investment climate is important, because it can lead to a higher rate of investment, profits, and improved productivity, through the creation of an institutional environment, where the state provides high quality public goods, including infrastructure, political stability, and strategies for reducing consumption, fair and effective public administration. This study aims to explore the impact of business-investment climate on firm’s value added, labour and total factor productivity (TFP) in a sample of six countries in the Middle East and North Africa (MENA) region and Turkey. The analysis relies on micro-level data derived from the World Bank Enterprise Surveys over the period 2006-2016. To reduce endogeneity coming from possible reverse causality and the perceptions about business climate we follow an instrumental variables (IV) approach applying the two-stage least squares (2SLS) method. Based on our favoured 2SLS estimates the obstacles in business climate may reduce the firm performance measures by 15-40 per cent. These findings indicate the importance of the quality in business climate and how the improvement in its effectiveness can have a very considerable positive impact on firms’ performance and thus in the overall economic growth of a country.
    Date: 2018–12–26
  13. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    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 uctuations 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 fluctuations, consumption habits, Bulgaria
    JEL: E32 E22 E37
    Date: 2018–09
  14. By: James Cloyne; Clodomiro Ferreira; Maren Froemel; Paolo Surico
    Abstract: We provide new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most significant change in capital expenditure - even after conditioning on size, asset growth, Tobin's Q, leverage or liquidity - and drive the response of aggregate investment. Older companies, in contrast, hardly react at all. After a monetary policy tightening, net worth falls considerably for all firms but borrowing declines only for younger non-dividend payers, as their external finance is mostly exposed to asset value fluctuations. Conversely, cash flows change less markedly and more homogeneously across groups. Our findings highlight the role of firm finance and financial frictions in amplifying the effects of monetary policy on investment.
    JEL: E22 E32 E52
    Date: 2018–12
  15. By: Link, Albert (University of North Carolina at Greensboro, Department of Economics); Sarala, Riikka (University of North Carolina at Greensboro, Department of Management)
    Abstract: University entrepreneurship ecosystems are increasingly important in facilitating innovation and entrepreneurial opportunities in today’s knowledge-based economies. However, we have an incomplete understanding of the role of the entrepreneurial firm as the key user of university knowledge. We propose that use of university knowledge positively influences entrepreneurial firm performance and that the entrepreneurial firm’s resource and capabilities facilitate its ability to create value from university knowledge. We test our hypotheses with survey data on knowledge intensive entrepreneurial firms from 10 European countries. Our study contributes to an increased understanding of the economic, societal, and technological contributions of universities by illustrating empirically the role of entrepreneurial firm’s resources and capabilities as moderators of value in university ecosystems.
    Keywords: entrepreneurship; strategic behavior; university-based knowledge; European Union;
    JEL: L26 O31
    Date: 2019–01–04
  16. By: Alex Coad (CENTRUM Catolica Graduate Business School, Pontificia Universidad Católica del Perú); Masatoshi Kato (School of Economics, Kwansei Gakuin University)
    Abstract: Research has recently emphasized that the non-survival of entrepreneurs can be disaggregated into distinct exit routes such as merger and acquisition (M&A), voluntary closure and failure. Firm performance is an alleged determinant of exit route. However, there is a lack of evidence linking exit routes to their previous growth performance. We contribute to this gap by analysing a cohort of incorporated firms in Japan, and find some puzzles for the standard view. In the Japanese context, not all exit routes are available to all firms: small firms do not realistically face the options of M&A or bankruptcy, but essentially face a choice between survival and voluntary liquidation. Our empirical analysis suggests that sales growth generally reduces the probability of exit by merger,voluntary liquidation, and also bankruptcy. However, the relationship is U-shaped - such that rapid growth actually increases the probability of exit. More generally, each of the three exit routes can occur all across the growth rate distribution. Large firms are more likely to exit via merger or bankruptcy, while small firms are more likely to exit via voluntary liquidation.
    Keywords: Exit routes, shadow of death, post-entry growth, start-up size, voluntary liquidation, M&A.
    Date: 2018–12
  17. By: Giammario Impullitti (School of Economics, University of Nottingham - UON - University of Nottingham, UK, CESifo - Center for Economic Studies and Ifo for Economic Research - CESifo Group Munich); Omar Licandro (School of Economics, University of Nottingham - UON - University of Nottingham, UK, Instituto de Análisis Económico (CSIC) and Barcelona GSE); Pontus Rendahl (Faculty of Economics, University of Cambridge, CFM - Center for Macroeconomics , CEPR)
    Abstract: We study the gains from trade in a new model with oligopolistic competition, firm heterogeneity, and innovation. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Trade liberalisation can also reduce the number of firms competing in each market, thereby increasing markups on both domestic and export sales. For the majority of exporters, however, the pro- competitive effect prevails and their average markups decline. The incomplete pass-though and the reduction in the number of competitors instead dominate for top-exporters – the top 0.1% of firms – which end up increasing their markup. In a quantitative exercise we find that the aggregate effect of trade-induced markup changes is pro-competitive and accounts for the majority of the welfare gains from trade. Trade-induced changes in competition affect survival on domestic and export markets and firms' decision to innovate. All exporters, and especially the top exporters, increase their market size after liberalisation which, in turn, encourages them to innovate more. Hence, top exporters contribute negatively to welfare gains by increasing their markups but positively by increasing innovation and productivity. Firms' innovation response accounts for a small but non-negligible share of the welfare gains while the contribution of selection is U-shaped, being negative for small liberalisations and positive otherwise. A more globalised economy is therefore populated by larger, fewer and more innovative firms, each feature representing an important source of the gains from trade.
    Keywords: gains from trade,heterogeneous firms,oligopoly,innovation,endogenous markups,endogenous market structure
    Date: 2018–11
  18. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: We introduce progressive consumption taxation 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 of progressive taxation of consumption expenditures for the stabilization of cyclical uctuations in Bulgaria. We find the quantitative effect of such a tax to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles, progressive consumption taxation, Bulgaria
    JEL: E24 E32
    Date: 2018–12

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