nep-bec New Economics Papers
on Business Economics
Issue of 2019‒09‒09
nine papers chosen by
Vasileios Bougioukos
Bangor University

  1. CEO age and organic growth among European firms By Giorgio Barba Navaretti; Davide Castellani; Fabio Pieri
  2. Skills Scarcity and Export Intensity By Carlo Perroni; Davide Suverato
  3. Value-Capture in the Face of Known and Unknown Unknowns By Burkhard C. Schipper; Kevin Bryan; Michael Ryall
  4. Synergizing Ventures By Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
  6. Employment protection and firm-level job reallocation: Adjusting for coverage By Bendicta Marzinotto; Ladislacv Wintr
  8. Effects of Earnings Management Strategy on Earnings Predictability: A Quantile Regression Approach Based on Opportunistic Versus Efficient Earnings Management By Leon Li; Nen-Chen Richard Hwang; Gilbert V. Nartea
  9. Consumer Learning and Firm Dynamics By Zachary Mahone; Filippo Rebessi

  1. By: Giorgio Barba Navaretti; Davide Castellani; Fabio Pieri
    Abstract: We examine the relation between the age of CEOs and firm organic growth. In a large sample of mostly privately held European manufacturing firms with more than 10 employees, we find that firms managed by a young CEO grow faster in terms of both sales and assets. Our results are robust to the inclusion of a large vector of firm and CEO characteristics and to controls for endogeneity, survival bias and time horizon. We submit that this relation is explained by an incentive of young CEOs to boost firm growth in order both to signal their talent in the market for managers and to get a longer stream of future compensation benefits. In turn, this may create an agency problem, due to a divergence of this corporate strategy from shareholders’ targets. Consistently, we find that a concentrated ownership, allowing a more effective monitoring, moderates the negative relation between CEO age and firm organic growth.
    Keywords: Chief Executive Officer, CEO age, organic growth, agency theory, European manufacturing firms
    JEL: G32 G34 L25
    Date: 2019
  2. By: Carlo Perroni; Davide Suverato
    Abstract: We describe a model of trade with input based product differentiation and non-proportional trade costs that is capable of predicting a positive correlation between firms’ export intensity, the price of their exports, and the wages they pay to their workers. These correlations arise in the model solely from comparative input scarcity and independently of any productivity differentials: in equilibrium, firms that employ workers with comparatively scarcer skills, other things equal, export a larger proportion of their output, pay higher wages and charge higher prices.
    Keywords: export intensity and wages, input based product differentiation
    JEL: F12 F16 E24
    Date: 2019
  3. By: Burkhard C. Schipper; Kevin Bryan; Michael Ryall (Department of Economics, University of California Davis)
    Abstract: A large theoretical literature on value capture following Brandenburger and Stuart (1996) uses cooperative games under complete information to study how and why firms earn supernormal profits. However, firms often have different information, beliefs, or creative foresight. We extend value capture theory to incomplete information (``known unknowns'') or unawareness (``unknown unknowns''), and illustrate some conceptual issues with that extension. Using the case study of Cirque du Soleil, we show how an entrepreneurial firm can profit even when it does not contribute materially to value creation.
    Keywords: cooperative games, unawareness, incomplete information, coarse core, business strategy, value-capture theory
    JEL: D21 D83 C71
    Date: 2019–08–28
  4. By: Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
    Abstract: Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC-backing increases a startup’s likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth.
    JEL: G24 O31 O32 O40
    Date: 2019–08
  5. By: Giacomo Degli Antoni (University of Parma, Department of Law); Magalì Fia (Dipartimento di ingegneria gestionale, Politecnico di Milano); Lorenzo Sacconi (University of Milan)
    Abstract: In the debate surrounding various reforms in higher education systems, performance, along with how universities should be governed, have been main issues. We argue that the demand for shared governance, i.e., faculty participation in decision‐making vs. concentrated or top‐down decision‐ making, is driven by the characteristics of academic transactions. Especially in universities, shared governance prevents that the unilateral allocation of authority paves the way to the abuse of authority, which would depress incentives to undertake optimal idiosyncratic investments in human cognitive resources, or prevent cooperation in a context characterized by contractual incompleteness and transactions involving multiple specific investments and coessential resources. To empirically analyze our hypothesis, we collect original survey data of Italian universities in 2015. We find that shared decision‐making processes are correlated with better performance.
    Keywords: universities; shared governance; new public management; performance; theory of the firm; economics of institutions
    JEL: L2 L21 I2 I23 D2 D23
    Date: 2019–08
  6. By: Bendicta Marzinotto; Ladislacv Wintr
    Abstract: This paper finds that employment protection legislation (EPL) had a significant impact on employment adjustment in Europe over 2001-2013, once we account for firm-size related exemptions to EPL. We construct a novel coverage-adjusted EPL indicator and find that EPL hinders employment growth at the firm level and increases the share of firms that remain in the same size class. This suggests that stricter EPL restrains job creation because firms fear the costs of shedding jobs during downturns. We do not find evidence that EPL has positive effects on employment by limiting job losses after adverse shocks. In addition to standard controls for the share of credit-constrained firms and the position in the business cycle, we also control for sizerelated corporate tax exemptions and find that these also significantly constrain job creation among incumbent firms.
    Keywords: employment protection; firm growth; job reallocation.; Employment protection; firm growth; job reallocation
    JEL: J08 D22
    Date: 2019–07
  7. By: Daunfeldt, Sven-Olov (Institute of Retail Economics (Handelns Forskningsinstitut)); Westerberg, Hans (Institute of Retail Economics (Handelns Forskningsinstitut))
    Abstract: The number of refugees in Europe has increased dramatically in recent years, and many countries are facing great challenges to integrating these refugees into their societies. A small group of high-growth firms have at the same time attracted attention because they create the most new jobs at any given point in time. Using matched employer-employee data from Statistics Sweden, we find that these high-growth firms in general are more likely to recruit first-generation immigrants that are unemployed. This provides support for the hypothesis that managers in high-growth firms, to greater extents, recruit marginalized individuals because they want to take advantage of their growth opportunities and therefore do not wait for the best match. Rapidly growing firms are thus less selective in their hiring decisions, and policies that are focused on increasing the number of high-growth firms might also help immigrants who face difficulties entering the labor market.
    Keywords: Firm growth; Gazelles; High-growth firms; Immigration; Integration; Labor market; Matching models; Resource based theory; Interaction effects; Logit; Odds ratio
    JEL: D22 J15 L25 L26
    Date: 2019–08–30
  8. By: Leon Li; Nen-Chen Richard Hwang; Gilbert V. Nartea (University of Canterbury)
    Abstract: This study argues that the managerial choice of earnings management strategy may be contingent upon a firm’s information asymmetry and such a strategy affects the firm’s earnings predictability. Measuring information asymmetry by earnings predictability based on the subsequent dispersion in analysts’ forecasts and employing a quantile regression to analyze 28,383 U.S. firm-year observations obtained from 1988 to 2014, this study reports that the effect of earnings management strategy on earnings predictability is non-uniform. Specifically, the amount of absolute discretionary accruals negatively (positively) relate to the subsequent dispersion in analysts’ forecasts in the low (high) quantiles of the latter. These results support our hypothesis that a firm may implement efficient or opportunistic earnings management strategies according to the degree of information asymmetry between the firm’s management and corporate outsiders.
    Keywords: Discretionary accruals, analysts’ forecasts dispersion, quantile regression
    JEL: G12 G32
    Date: 2019–08–01
  9. By: Zachary Mahone; Filippo Rebessi
    Abstract: We propose a general equilibrium model of industry where consumers learn about firms' unobserved product quality over time. Because consumers learn through purchase decisions, price setting is a crucial lever through which firms manipulate future demand. We map equilibrium policies to a range of empirical evidence on industry, firm, product and price dynamics. We then study how firms respond as consumer information varies. Specifically, we show that firms exacerbate information problems by constraining learning more aggressively in those markets where consumers are less informed. Developing an indicator of consumer information by product category, we find these are typically markets for consumer durables. Finally, the efficiency implications of this behavior and interaction with size-dependent policies are explored.
    Keywords: Learning; Firm Dynamics; Product Quality; Welfare
    JEL: E23 D83 L11
    Date: 2019–08

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