nep-bec New Economics Papers
on Business Economics
Issue of 2019‒01‒28
23 papers chosen by
Vasileios Bougioukos
Bangor University

  1. Family firms and labour productivity: the role of enterprise-level bargaining in the Italian economy By Damiani, Mirella; Pompei, Fabrizio; Ricci, Andrea
  2. Corporate Debt, Firm Size and Financial Fragility in Emerging Markets By Laura Alfaro; Gonzalo Asis; Anusha Chari; Ugo Panizza
  3. On the choice of CEO duality: Evidence from a mandatory disclosure rule By Goergen, Marc; Limbach, Peter; Scholz-Daneshgari, Meik
  4. The Intensive Margin in Trade By Ana Fernandes; Peter J. Klenow; Sergii Meleshchuk; Martha Denisse Pierola; Andres Rodriguez-Clare
  5. Unions, Two-Tier Bargaining and Physical Capital Investment: Theory and Firm-Level Evidence from Italy By Cardullo, Gabriele; Conti, Maurizio; Sulis, Giovanni
  6. Concordance and complementarity in Intellectual Property instruments By M. Grazzi; C. Piccardo; C. Vergari
  7. Nowhere Else to Go: The Determinants of Bank-Firm Relationship Discontinuations after Bank Mergers By Oliver Rehbein; Santiago Carbo-Valverde
  8. Platform Competition: Who Benefits from Multihoming? By Dana Kassem
  9. Founder Involvement in CEO Turnover By Oskar Kowalewski; Aleksandra Majda-Kariozen; Blazej Socha
  10. The Information in Interest Coverage Ratios of the US Nonfinancial Corporate Sector By Francisco J. Palomino; Stephen Paolillo; Ander Perez; Gerardo Sanz-Maldonado
  11. Are labor unions important for business cycle fluctuations: lessons from Bulgaria (1999-2016) By Vasilev, Aleksandar
  12. Who Creates Stable Jobs? Evidence from Brazil By Brummund, Peter; Connolly, Laura
  13. The role of employee incentive pay in the competitiveness of family and non-family firms By Damiani, Mirella; Pompei, Fabrizio; Ricci, Andrea
  14. Family firms, performance-related pay and the great crisis: evidence from the Italian case By Pompei, Fabrizio; Damiani, Mirella; Andrea, Ricci
  15. Short-time work in the Great Recession: Firm-level evidence from 20 EU countries By Lydon, Reamonn; Matha, Thomas Y.; Millard, Stephen
  16. Firm Organization with Multiple Establishments By Anna Gumpert; Henrike Steimer; Manfred Antoni
  17. Post-Entry Performance of International New Ventures: The Mediating Role of Learning Orientation By Stephan Gerschewski; Yong Kyu Lew; Zaheer Khan; Byung Il Park
  18. The Origins of Firm Heterogeneity: A Production Network Approach By Andrew B. Bernard; Emmanuel Dhyne; Glenn Magerman; Kalina Manova; Andreas Moxnes
  19. Sales and Markup Dispersion: Theory and Empirics By Monika Mrázová; J. Peter Neary; Mathieu Parenti
  20. How do tax incentives affect business investment? Evidence from German bonus depreciation By Eichfelder, Sebastian; Schneider, Kerstin
  21. 57 Channels (And Nothin On) - Does TV-News on the Eurozone Affect Government Bond Yield Spreads? By Julia Wolfinger; Lars P. Feld; Ekkehard A. Köhler; Tobias Thomas
  22. Under Pressure? Assessing the Roles of Skills and Other Personal Resources for Work-Life Strains By Blunch, Niels-Hugo; Ribar, David; Western, Mark
  23. Why Is Executive Compensation So High? A Model of Executive Compensation By Harashima, Taiji

  1. By: Damiani, Mirella; Pompei, Fabrizio; Ricci, Andrea
    Abstract: We investigate the role of Italian firms in labour productivity performance. We find that family-owned firms have lower labour productivity than their non-family counterparts. In a second step, we estimate the role of firm-level bargaining (FLB) to determine whether family-controlled firms that adopt this type of bargaining may partially close the gap in terms of labour productivity with their non-family competitors. Our results, obtained through IV estimation to control for endogeneity bias, suggest that enterprises under family governance achieve significant labour productivity gains — greater than those achieved by their non-family counterparts — when they adopt firm-level bargaining.
    Keywords: Family firms, corporate governance, labour productivity, firm-level bargaining
    JEL: D24 G32 G34
    Date: 2018–10
  2. By: Laura Alfaro; Gonzalo Asis; Anusha Chari; Ugo Panizza
    Abstract: The post-Global Financial Crisis period shows a surge in corporate leverage in emerging markets and a number of countries with deteriorated corporate financial fragility indicators (Altman’s Z-score). Firm size plays a critical role in the relationship between leverage, firm fragility and exchange rate movements in emerging markets. While the relationship between firm-leverage and distress scores varies over time, the relationship between firm size and corporate vulnerability is relatively time-invariant. All else equal, large firms in emerging markets are more financially vulnerable and also systemically important. Consistent with the granular origins of aggregate fluctuations in Gabaix (2011), idiosyncratic shocks to the sales growth of large firms are positively and significantly correlated with GDP growth in our emerging markets sample. Relatedly, the negative impact of exchange rate shocks has a more acute impact on the sales growth of the more highly levered large firms.
    JEL: F34 G01 G15 G32
    Date: 2019–01
  3. By: Goergen, Marc; Limbach, Peter; Scholz-Daneshgari, Meik
    Abstract: We adopt a novel approach to explain why firms opt for or against CEO duality and the value implications of this choice. Exploiting the 2009 amendments to Regulation S-K, we provide unique evidence on the first-time disclosure of the reasons firms state for combining (separating) the roles of CEO and chairman. The stated reasons support both agency theory and organization theory. They are more numerous and comprise more words, including more positive words, for firms with duality. Examining the announcement returns to firms' disclosures, we find that investors evaluate the main reasons for CEO duality by considering the firm's characteristics.
    Keywords: CEO Duality,Board of Directors,Firm Valuation,Regulation S-K,Textual Analysis
    JEL: G14 G34 G38
    Date: 2018
  4. By: Ana Fernandes; Peter J. Klenow; Sergii Meleshchuk; Martha Denisse Pierola; Andres Rodriguez-Clare
    Abstract: The Melitz model highlights the importance of the extensive margin (the number of firms exporting) for trade flows. Using the World Bank’s Exporter Dynamics Database (EDD) featuring firm-level exports from 50 countries, we find that around 50 percent of variation in exports is along the extensive margin—a quantitative victory for the Melitz framework. The remaining 50 percent on the intensive margin (exports per exporting firm) contradicts a special case of Melitz with Pareto-distributed firm productivity, which has become a tractable benchmark. This benchmark model predicts that, conditional on the fixed costs of exporting, all variation in exports across trading partners should occur on the extensive margin. We find that moving from a Pareto to a lognormal distribution allows the Melitz model to match the role of the intensive margin in the EDD. We use likelihood methods and the EDD to estimate a generalized Melitz model with a joint lognormal distribution for firm-level productivity, fixed costs and demand shifters, and use “exact hat algebra” to quantify the effects of a decline in trade costs on trade flows and welfare in the estimated model. The welfare effects turn out to be quite close to those in the standard Melitz-Pareto model when we choose the Pareto shape parameter to fit the average trade elasticity implied by our estimated Melitz-lognormal model, although there are significant differences regarding the effects on trade flows.
    Date: 2018–12–07
  5. By: Cardullo, Gabriele (University of Genova); Conti, Maurizio (University of Genova); Sulis, Giovanni (University of Cagliari)
    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
    JEL: J51 J64 E22
    Date: 2018–11
  6. By: M. Grazzi; C. Piccardo; C. Vergari
    Abstract: This work investigates the relationship between proxies of innovation activities, such as patents and trademarks, and firm performance in terms of revenues and growth. By resorting to the virtual universe of Italian manufacturing firms we provide a rather complete picture of the innovation activities of Italian firms, in terms of patents and trademarks, and we study whether the two instruments for protecting Intellectual Property (IP) exhibit complementarity or substitutability. In addition, and to our knowledge novel, we propose a measure of concordance (or proximity) between the patents and trademarks owned by the same firm and we then investigate whether such concordance appears to exert any effect on performance.
    JEL: O31 O34 L25
    Date: 2019–01
  7. By: Oliver Rehbein; Santiago Carbo-Valverde
    Abstract: The decision to change or terminate a bank-firm relationship has been demonstrated to be crucial for firm performance following bank mergers. We find both competition and the available firm collateral to be important factors in enabling firms to switching banks, instead of dropping their bank relationships. We also provide novel evidence that firms who are able to \textit{add} a bank relationship following a merger exhibit much stronger post-merger performance. Our findings are consistent with the interpretation that bank-mergers cause a reduction in lending to most firms, leading them to search for alternative sources of finance.
    Keywords: bank mergers, relationship banking, competition
    JEL: G21 G34
    Date: 2018–09
  8. By: Dana Kassem
    Abstract: I ask whether electrification causes industrial development. I combine newly digitized data from the Indonesian state electricity company with rich manufacturing census data. To understand when and how electrification can cause industrial development, I shed light on an important economic mechanism - firm turnover. In particular, I study the effect of the extensive margin of electrification (grid expansion) on the extensive margin of industrial development (firm entry and exit). To deal with endogenous grid placement, I build a hypothetical electric transmission grid based on colonial incumbent infrastructure and geographic cost factors. I find that electrification causes industrial development, represented by an increase in the number of manufacturing firms, manufacturing workers, and manufacturing output. Electrification increases firm entry rates, but also exit rates. Empirical tests show that electrification creates new industrial activity, as opposed to only reorganizing industrial activity across space. Higher turnover rates lead to higher average productivity and induce reallocation towards more productive firms in electrified areas. This is consistent with electrification lowering entry costs, increasing competition and forcing unproductive firms to exit more often. Without the possibility of entry or competitive effects of entry, the effects of electrification are likely to be smaller.
    JEL: D24 L60 O13 O14 Q41
    Date: 2018–11
  9. By: Oskar Kowalewski (IESEG School of Management (LEM-CNRS-UMR 9221)); Aleksandra Majda-Kariozen (Faculty of Management, University of Lodz); Blazej Socha (Faculty of Management, University of Lodz)
    Abstract: We study the role of a company founder in its internal governance. Using a sample of 484 CEO turnovers for 2000–2015, we establish that CEOs are fired for poor performance. However, the likelihood of a poor-performing founder-CEO being fired is lower than that of an outsider CEO. Moreover,having a founder as a member of the executive or supervisory board decreasesthe likelihood that a CEO will be dismissed for poor performance. Similarly,founder ownership may have the same effect on CEO turnover. Finally, being a founder does not guarantee a poor-performing CEO a chairman position after being fired.
    Keywords: Founder involvement; CEO turnover; Corporate governance; Firm performance
    Date: 2019–01
  10. By: Francisco J. Palomino; Stephen Paolillo; Ander Perez; Gerardo Sanz-Maldonado
    Abstract: Using firm-level data, we find significant variability in interest coverage ratios--across firms and economic sectors and across time--that suggests that critical ICR levels depend on firm- or sector-specific economic conditions.
    Date: 2019–01–10
  11. By: Vasilev, Aleksandar
    Abstract: In this paper we investigate the quantitative importance of collective agreements in explaining uctuations in Bulgarian labor markets. Following Maffezzoli (2001), we introduce a monopoly union in a real-business-cycle model with government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016), and compare and contrast it to a model with indivisible labor and no unions as in Rogerson and Wright (1988). We find that the sequential bargaining between unions and firms produces an important internal propagation mechanism, which fits data much better that the alternative framework with indivisible labor.
    Keywords: business cycles,general equilibrium,labor unions,indivisible labor,involuntary unemployment
    JEL: E32 E24 J23 J51
    Date: 2019
  12. By: Brummund, Peter (University of Alabama); Connolly, Laura (University of Alabama)
    Abstract: Recent research shows that start-ups are important for job creation, but these firms are also inherently volatile. We use linked employer-employee data to examine the relative importance of firm age and firm size for job creation and destruction in Brazil. Firm age is a more important determinant of job creation in Brazil than firm size; young firms and start-ups create a relatively high number of jobs. However, young firms are also more likely to exit the market and have higher levels of employment volatility. We, therefore, condition the job creation analysis on job stability. Young firms and large firms create relatively more stable jobs in Brazil.
    Keywords: job creation, job stability, Brazilian labor market
    JEL: L25 J23 J63
    Date: 2018–11
  13. By: Damiani, Mirella; Pompei, Fabrizio; Ricci, Andrea
    Abstract: Insufficient attention has been paid to the different roles of wage incentives in the competitiveness of family and non-family firms. This paper addresses this issue and uses a sample of listed and non-listed Italian firms for 2007 and 2010 to show that family firms that adopt incentive wages obtain greater gains in competitiveness with respect to non-family firms. Unlike what occurs in non-family firms, the efficiency enhancing effect of incentive wages more than compensates for the premiums paid to employees and enables family firms to achieve significant gains in terms of competitiveness.
    Keywords: Family firms Performance-related pay Labour productivity Wages Competitiveness
    JEL: D24 G32 J33
    Date: 2018–11–15
  14. By: Pompei, Fabrizio; Damiani, Mirella; Andrea, Ricci
    Abstract: This article analyses how Italian family firms (FFs) have acted during the global great crisis in comparison to their nonfamily counterparts using a sample of almost 4500 firms for 2007 and 2010. We study whether family control affects labor productivity, labor costs, and competitiveness and how family and nonfamily firm (NFFs) have responded to the great crisis. Furthermore, we test whether the adoption of performance-related pay (PRP) for employees offers an efficacious strategy to mitigate the effects of the crisis. Quantile regression techniques have been used to test the heterogeneous role of PRP, and its possible endogeneity has been taken into account in the empirical investigation. After the outbreak of the crisis, the distance in terms of the competitiveness of FFs in relation to their nonfamily counterparts increased. However, we also find that FFs may take advantage of the adoption of incentive schemes, such as PRP, to encourage commitment and motivation from their employees more than NFFs do. The positive role of PRP on labor productivity, coupled with a moderate influence of these schemes on wage premiums, enables them to regain competitiveness. In addition, for FFs located in industrial districts in which social rules prevail on formal rules, the adoption of PRP has exerted additional positive effects under hostile pressures, such as those characterizing the strong global crisis.
    Keywords: Family firms, performance-related pay, quantile regressions, productivity
    JEL: D24 G32 J33
    Date: 2018–12–06
  15. By: Lydon, Reamonn (Central Bank of Ireland); Matha, Thomas Y. (Banque centrale du Luxembourg); Millard, Stephen (Bank of England, Durham University Business School and Centre for Macroeconomics)
    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.
    Keywords: Firms, survey, crisis, short-time work, wages, recession.
    JEL: C25 E24 J63 J68
    Date: 2018–12
  16. By: Anna Gumpert; Henrike Steimer; Manfred Antoni
    Abstract: How do geographic frictions affect firm organization? We show theoretically and empirically that geographic frictions increase the use of middle managers in multi-establishment firms. In our model, we assume that the time of the CEO of a firm is a resource of limited supply that is shared among the headquarters and the establishments. Geographic frictions increase the costs of accessing the CEO. Hiring middle managers at an establishment substitutes for CEO time that is reallocated over all establishments. In consequence, geographic frictions between the headquarters and one establishment affect the organization of all establishments of a firm. Our model is consistent with novel facts about multi-establishment firm organization that we document using administrative data from Germany. We exploit the opening of high-speed train routes to show that not only the establishments directly affected by faster travel times but also the other establishments of the firm adjust their organization. Our findings imply that local conditions propagate across space through firm organization.
    Keywords: firm organization, multi-establishment firm, knowledge hierarchy, geography
    JEL: D21 D22 D24
    Date: 2018
  17. By: Stephan Gerschewski (Henley Business School, University of Reading); Yong Kyu Lew (Hankuk University of Foreign Studies, College of Business, South Korea); Zaheer Khan (University of Kent, Kent Business School, UK); Byung Il Park (Hankuk University of Foreign Studies, College of Business,South Korea)
    Abstract: This paper investigates the role of learning orientation in the post-entry performance of international new ventures (INVs) by examining the relationships of niche strategy, network resources, and learning orientation with the multi-dimensional post-entry performance of INVs. Based on the INV internationalisation literature, we develop and validate a conceptual model using a sample of 147 INVs from two relatively small and open economies from New Zealand and Australia. The results show that learning orientation of INVs positively mediates the relationship between niche orientation and network resources and INVs’ post-entry performance. Our study indicates that learning orientation may be an important capability through which INVs’ focused international business strategies and resources (e.g., niche orientation and network resources) may influence their multi-dimensional post-entry performance in terms of operational, financial and overall effectiveness measures. We draw key implications for research on INVs’ post-entry behaviour by explicating the role played by the firms’ learning capabilities, and how these capabilities may interact with their strategies and resources in enhancing the post-entry performance of INVs.
    Keywords: international new venture, learning orientation, niche orientation, network resources, post-entry performance
    JEL: M16
    Date: 2018–06
  18. 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.
    JEL: F10 F12 F16 L23 L25
    Date: 2019–01
  19. By: Monika Mrázová; J. Peter Neary; Mathieu Parenti
    Abstract: We derive exact conditions relating the distributions of firm productivity, sales, output, and markups to the form of demand in monopolistic competition. Applications include a new “CREMR” demand function (Constant Revenue Elasticity of Marginal Revenue): it is necessary and sufficient for the distributions of productivity and sales to have the same form (whether Pareto, lognormal, or Fréchet) in the cross section, and for Gibrat’s Law to hold over time; it implies a new class of distributions well-suited to capture the dispersion of markups; and it provides a parsimonious fit for the distributions of sales and markups superior to most widely-used alternatives.
    Keywords: CREMR demands, Gibrat’s Law, heterogeneous firms, Kullback-Leibler divergence, lognormal versus Pareto distributions, sales and markup distributions
    JEL: F15 F23 F12
    Date: 2018
  20. By: Eichfelder, Sebastian; Schneider, Kerstin
    Abstract: We analyse how tax incentives in the form of accelerated depreciations ("bonus depreciation") affect business investment. By exploiting exogenous variation in tax regulation of a regional bonus depreciation program in the former East Germany, we identify and quantify the impact from bonus depreciation on building and equipment investments at the extensive and intensive margins in the German manufacturing industry. We observe a stronger response for building investments and from large firms. There is only weak evidence of subsidy shopping but stronger evidence of investment shifting to years with more generous bonus depreciation regulations.
    Keywords: bonus depreciation,tax incentive,business taxation,heterogeneity
    JEL: G11 H25 H32 M41
    Date: 2018
  21. By: Julia Wolfinger; Lars P. Feld; Ekkehard A. Köhler; Tobias Thomas
    Abstract: This paper empirically investigates the relationship between TV news coverage and the GIIPS countries’ bond yield spreads using daily data between January 1, 2007 and December 1, 2016. We employ 1,542,233 human coded news items from evening news shows of leading TV stations in 12 countries which include 37,859 news on the EU, on the Eurozone and on country-specific economic issues. We find that an increasing share of news about the Eurozone reduces yield spreads, especially when the news has a positive tonality. This hints at the effectiveness of political communication through the media by European institutions and in particular the European Central Bank (ECB). In conjunction with the tonality of the news, we find that country-specific news have a significant impact on GIIPS yield spreads. A higher share of positive/negative news is positively associated with a decrease/increase of the GIIPS yield spreads vis-à-vis Germany. Moreover, some news is not immediately and completely priced in by market participants when it is released. In addition, this peculiar effect of country specific news is stronger when the respective news is aired on the North American media market.
    Keywords: Eurozone, Euro, political communication, media coverage, yield spreads, dynamic macro panel, FGLS
    JEL: E58 G12 L80 N14
    Date: 2018
  22. By: Blunch, Niels-Hugo; Ribar, David; Western, Mark
    Abstract: Many working parents struggle to balance the demands of their jobs and family roles. Although we might expect that additional resources would ease work-family constraints, theory and evidence regarding resources have been equivocal. This study uses data on working mothers and fathers—as well as their cohabiting partners/spouses—from the Household, Income, and Labour Dynamics in Australia survey to investigate how personal resources in the form of skills, cognitive abilities, and personality traits affect work-life strains. It considers these along with standard measures of economic, social, and personal resources, and estimates seemingly unrelated regression (SUR) models of work-life strains for employed mothers and fathers that account for correlations of the couple’s unobserved characteristics. The SUR estimates indicate that computer skills reduce work-life strains for mothers, that math skills reduce strains for fathers, and that the personality traits of extraversion, conscientiousness, and emotional stability reduce strains for both parents. However, the estimates also indicate that better performance on a symbol look-up task, which tests attention, visual scanning acuity, and motor speed, increases fathers’ work-life strains.
    Keywords: Work-family strains and gains,cognitive abilities,skills,household resources,Australia,HILDA survey
    JEL: I1 I31 J24 J81
    Date: 2018
  23. By: Harashima, Taiji
    Abstract: In this paper, I examine the mechanism of extremely high executive compensation based on the concept of ranking value and preference, and show that the origin of such extremely high compensation is economic rents. Ranking value and preference provide monopoly powers, profits, and rents to producers and generate “superstars” who are not only absolutely but, more importantly, are relatively superior to other executives. Furthermore, ranking value and preference enable a firm’s product to be differentiated and provide the firm monopoly rents (profits). Executives who contribute to differentiating the product can obtain economic rents and be compensated similar to superstars on professional sports teams. The monopoly rents owing to ranking values can be socially justified, but they may not be socially justifiable if they are solely distributed to executives.
    Keywords: Economic rent; Executive compensation; Monopoly profits; Product differentiation; Ranking preference; Ranking value; Superstar
    JEL: D11 D42 J30 M12 M52
    Date: 2019–01–08

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