nep-bec New Economics Papers
on Business Economics
Issue of 2019‒05‒13
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. How important are management practices for the productivity of small and medium enterprises? By Demenet Axel; Hoang Quynh
  2. Do High-Quality Local Institutions Shape Labour Productivity in Western European Manufacturing Firms? By Ganau, Roberto; Rodríguez-Pose, Andrés
  3. Big and ‘unprofitable’: How 10% of multinational firms do 98% of profit shifting By Wier Ludvig; Reynolds Hayley
  4. The gender gap in firm productivity in Rwanda : Evidence from establishment and household enterprise data By Munyegera Ggombe; Precious Akampumuza
  5. CEO turnover and volatility under long-term employment contracts By Cziraki, Peter; Xu, Moqi
  6. Multinational Expansion in Time and Space By Garetto, Stefania; Oldenski, Lindsay; Ramondo, Natalia
  7. Leverage and Deepening Business Cycle Skewness By Jensen, Henrik; Petrella, Ivan; Ravn, Soren; Santoro, Emiliano
  8. The Synchronization of Business Cycles and Financial Cycles in the Euro Area By William Oman
  9. Non-horizontal mergers with investments into compatibility By Gregor Langus; Vilen Lipatov; Jorge Padilla
  10. Employment and performance effects of circular economy innovations By Horbach, Jens; Rammer, Christian
  11. Why Do Firms Use Equity-Based Pay? Managerial Compensation and Stock Price Informativeness By Bennett, Benjamin; Garvey, Gerald; Milbourn, Todd; Wang, Zexi
  12. What gains and distributional implications result from trade liberalization? By Maria Bas; Caroline Paunov

  1. By: Demenet Axel; Hoang Quynh
    Abstract: Is the lack of ‘managerial capital’, alongside human and financial capital, a constraint on the growth of firms in developing countries? The evidence on this is still mixed, especially among small and medium enterprises.This paper uses a panel of Vietnamese small and medium enterprises to investigate this question. We build a multidimensional measure of managerial capital, combining both practices and attitudes, and link it with consistent estimates of firm-level productivity and mark-up. Even though bias may still affect the estimation of the overall influence of managerial capital on productivity, we show that there is a positive and significant association.Changes in management practices allow firms to be more efficient. Furthermore, we compare this association by firm size, and show that managerial capital is arguably as important for micro and small firms as it is for medium firms. Finally, it appears that the indicators related to ‘entrepreneurial attitudes’ play a more important role than elementary business skills.
    Keywords: Small and medium enterprises,Informal sector (Economics),Entrepreneurship
    Date: 2018
  2. By: Ganau, Roberto; Rodríguez-Pose, Andrés
    Abstract: We investigate the extent to which regional institutional quality shapes firm labour productivity in western Europe, using a sample of manufacturing firms from Austria, Belgium, France, Germany, Italy, Portugal and Spain, observed over the period 2009-2014. The results indicate that regional institutional quality positively affects firms' labour productivity and that government effectiveness is the most important institutional determinant of productivity levels. However, how institutions shape labour productivity depends on the type of firm considered. Smaller, less capital endowed and high-tech sectors are three of the types of firms whose productivity is most favourably affected by good and effective institutions at the regional level.
    Keywords: Cross-Country Analysis; labour productivity; Manufacturing firms; Regional Institutions; Western Europe
    JEL: C23 D24 H41 R12
    Date: 2019–04
  3. By: Wier Ludvig; Reynolds Hayley
    Abstract: Globally, the largest 0.001 per cent of firms earn roughly one-third of all corporate profits. Nonetheless, there is little understanding of how profit shifting differs across firm size.Using South African corporate tax returns from 2010–14, we investigate the link between firm size and profit shifting. We estimate that firms owned by a parent in a tax haven avoid taxation on as much as 80 per cent of their true income. However, this aggregate tax loss conceals large differences across firms.The majority of firms shift little income to tax havens, while a few large firms shift a lot. The top decile of foreign-owned firms accounts for 98 per cent of the total estimated tax loss. This extreme concentration of tax planning has not been documented before and has implications for both research and policy.First, our results imply that tax havens create competitive distortions as larger firms benefit more. Second, as past research does not account for heterogeneity across firms, it may underestimate the total tax loss caused by profit shifting.As an illustration of this, we revisit the OECD’s official estimate of profit shifting and find that profit shifting may have been dramatically underestimated.Resources Appendix.xlsx Appendix.pdf
    Keywords: Multinational firms,Profit shifting,Tax,Developing countries,International taxation
    Date: 2018
  4. By: Munyegera Ggombe; Precious Akampumuza
    Abstract: Rwanda is one of the countries with the best strategies for women empowerment and gender equality in Africa and globally. Nonetheless, some inequalities exist especially in education attainment.This study investigates the gender gaps in business performance using nationally representative household survey and establishment census data.Ordinary Least Squares results indicate that female-owned business enterprises employ fewer workers and are less productive than male-owned counterparts. Specifically, turnover and net revenue per worker are 20-22 per cent and 22-25 per cent lower among female-owned enterprises.The results are corroborated by propensity score matching estimates, implying that the estimated gender productivity gap is robust to observed heterogeneity between male- and female-owned enterprises.We investigate the potential mechanisms and find that female owners invest less capital, are less likely to seek and/or obtain credit and devote fewer hours per week to their businesses. Credit products targeting collateral-constrained and female-owned household enterprises could partially close the gender productivity gap.
    Keywords: Economic policy (Business enterprises),Gender,Productivity
    Date: 2018
  5. By: Cziraki, Peter; Xu, Moqi
    Abstract: We study the role of the contractual time horizon of CEOs for CEO turnover and corporate policies. Using hand-collected data on 3,954 fixed-term CEO contracts, we show that remaining time under contract predicts CEO turnover. When contracts are close to expiration, turnover is more likely and is more sensitive to performance. We also show a positive within-CEO relation between remaining time under contract and firm risk. Our results are similar across short and long contracts and are driven neither by firm or CEO survival, nor technological cycles. They are consistent with incentives to take long-term projects with interim volatility.
    Keywords: risk taking; volatility; career concerns; CEO contracts; CEO turnover
    JEL: G34 J41 J63
    Date: 2019–02–27
  6. By: Garetto, Stefania; Oldenski, Lindsay; Ramondo, Natalia
    Abstract: This paper studies the expansion patterns of the multinational enterprise (MNE) in time and space. Using a long panel of US MNEs, we document that: MNE affiliates grow by exporting to new markets; the activities of MNE affiliates persist during the affiliate's life, usually starting with sales to their host market and eventually expanding to export markets; and MNE affiliates' entry into new locations does not depend on the location of preexisting affiliates. Informed by these facts, we develop a multi-country quantitative dynamic model of the MNE that features heterogeneity in firm-level productivity, persistent aggregate shocks, and a rich structure of costs that affect MNE expansion. Importantly, MNE affiliates can decouple their locations of production and sales, and endogenously choose to enter or exit the host and the export markets. We introduce a compound option formulation that allows us to capture in a tractable way the rich heterogeneity that is observed in the data and that is necessary for quantitative analysis. Using the calibrated model, our quantitative application to Brexit reveals that export platforms are important for understanding the reallocation of MNE activity in time and space, and that the nature of the frictions to MNE activities matters for aggregate firm dynamics.
    Keywords: Firm Dynamics; Foreign direct investment; multinational firms; sunk costs
    JEL: F1
    Date: 2019–04
  7. By: Jensen, Henrik (University of Copenhagen); Petrella, Ivan (University of Warwick); Ravn, Soren (University of Copenhagen); Santoro, Emiliano (University of Copenhagen)
    Abstract: We document that the U.S. and other G7 economies have been characterized by an increasingly negative business cycle asymmetry over the last three decades. This finding can be explained by the concurrent increase in the financial leverage of households and firms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Improved access to credit increases the likelihood that financial constraints become non-binding in the face of expansionary shocks, allowing agents to freely substitute intertemporally. Contractionary shocks, on the other hand, are further amplified by drops in collateral values, since constraints remain binding. As a result, booms become progressively smoother and more prolonged than busts. Finally, in line with recent empirical evidence, financially-driven expansions lead to deeper contractions, as compared with equally-sized non-financial expansions.
    Keywords: Credit constraints; business cycles; skewness; deleveraging; JEL Classification Numbers: E32 ; E44
    Date: 2019
  8. By: William Oman (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, International Monetary Fund (IMF))
    Abstract: Using a frequency-based filter, I document the existence of a euro-area financial cycle and high- and low-amplitude national financial cycles. Applying concordance and similarity analysis to business and financial cycles, I provide evidence of five empirical regularities: (i) the aggregate euro-area creditto- GDP ratio behaved procyclically in the years preceding euro-area recessions; (ii) financial cycles are less synchronized than business cycles; (iii) business cycle synchronization has increased while financial cycle synchronization has decreased; (iv) financial cycle desynchronization was more pronounced between high-amplitude and low-amplitude countries, especially Germany; (v) high-amplitude countries and Germany experienced divergent leverage dynamics after 2002.
    Keywords: Business cycle,Economic integration,Euro area,Financial cycle,Monetary policy
    Date: 2019–03
  9. By: Gregor Langus; Vilen Lipatov; Jorge Padilla
    Abstract: We set up a model to analyze the effects of mergers between sellers of complementary components where firms invest in compatibility and can engage in bundling. We consider the impact of merger on prices, investment and consumer surplus. We also analyse when the merged firm may have an incentive and ability to foreclose rivals.
    Keywords: mergers, complementary goods, welfare effects, foreclosure, compatibility
    JEL: L13 L41
    Date: 2019
  10. By: Horbach, Jens; Rammer, Christian
    Abstract: Circular economy (CE) describes an economic concept that aims at saving resources by minimizing the use of material and energy over the entire life-cycle or products, including repair, reuse and recycling. CE innovations help to realize the goals of a sustainable development and target both the environmental, economic and social dimensions of sustainability. This paper looks at the economic and social dimensions by investigating the performance and employment effects of CE innovations at the firm level. CE innovations such as the reduction of energy and material consumption or the recycling of waste, water or material may lead to cost savings which in turn can increase the competitiveness of the firm and raise demand for a firm's products. Our econometric analysis uses data of two waves of the German part of the Community Innovation Survey (CIS). The performance effects of CE innovations measured by the financial standing of a firm and by turnover growth tend to be positive. The results of quantile regressions show that this is also the case for employment effects.
    Keywords: circular economy,Community Innovation Survey,eco-innovation,quantile regression
    JEL: C21 Q01 Q55
    Date: 2019
  11. By: Bennett, Benjamin (Ohio State University (OSU) - Department of Finance); Garvey, Gerald (Blackrock); Milbourn, Todd (Washington University in Saint Louis - Olin Business School); Wang, Zexi (University of Bern)
    Abstract: We study the motive of using equity-based pay in executive compensation: the risk-sharing motive versus the performance-measuring motive. The empirical design goes through the relationship between equity-based pay and stock price informativeness (SPI). We find equity-based pay decreases in SPI, which is consistent with the risk-sharing motive but inconsistent with the performance-measuring motive. The SPI effect on compensation is stronger in financially-constrained firms, more diversified firms, and firms with less product market competition. SPI increases pay efficiency through a larger proportion of option pay, fewer perquisites, and greater pay-for-skill. We address potential endogeneity concerns by investigating the changes in compensation of managers switching between firms with different SPI.
    JEL: G30 J33
    Date: 2019–05
  12. By: Maria Bas (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Caroline Paunov (OECD - Directorate for Science - Technology and Innovation)
    Abstract: This paper investigates the distributional impacts of trade liberalization across firms, consumers and workers. Using firm-product-level census data for Ecuador, we exploit exogenous tariff changes at entry to the World Trade Organization. We show that with input tariff cuts firms access higher quality and new input varieties. Consequently, firms increase their product scope and quality, while their production's skill-intensity increases and costs decrease. "Real" productivity (TFPG) increases only in the medium run, following adjustments to produce more and higher quality products. Positive immediate revenue productivity (TFPR) gains result because firms' markups increase. Consumers still gain as quality-adjusted prices decrease and varieties increase. Workers benefit differentially: skilled workers' wages rise compared to less skilled worker's wages. Input-tariff liberalization also has distributional impacts across firms. Only more productive firms with high markups increase product scope and quality and gain market shares. With output-trade liberalization the least productive firms decrease their product scope.
    Keywords: gains from trade,input and output tariff reductions,product scope,product quality,market share,quantity and revenue total factor productivity (TFPQ - TFPR),skill premium,markups,price,foreign inputs quality and variety,firm-product-level data,Ecuador
    Date: 2019–02

This nep-bec issue is ©2019 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.
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