nep-bec New Economics Papers
on Business Economics
Issue of 2019‒10‒28
nine papers chosen by
Vasileios Bougioukos
Bangor University

  1. Does Costly Reversibility Matter for U.S. Public Firms? By Bai, Hang; Li, Erica X. N.; Xue, Chen; Zhang, Lu
  2. Multi-product firms and increasing marginal costs By Pavolov, Oscar
  3. Organizational Design with Portable Skills By Luca Picariello
  4. Does CSR influence M&A target choices? By Mathieu Gomes
  5. Collective Reputation in Trade: Evidence from the Chinese Dairy Industry By Jie Bai; Ludovica Gazze; Yukun Wang
  6. Per unit and ad valorem royalties in a patent licensing game By Montinaro, Marta; Scrimitore, Marcella
  7. Defining Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation By Robert W. Fairlie; Frank M. Fossen
  8. Board of directors and export-spillovers: What is the impact on extensive margins of trade? By Lööf, Hans; Viklund-Ros, Ingrid
  9. A low willingness to pay in a duopoly a la Hotelling: The role of the public firm By Stefano Quarta

  1. By: Bai, Hang (University of Connecticut - Department of Finance); Li, Erica X. N. (Cheung Kong Graduate School of Business); Xue, Chen (University of Cincinnati); Zhang, Lu (Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER))
    Abstract: Yes, most likely. The firm-level evidence on costly reversibility is even stronger than the prior evidence at the plant level. The firm-level investment rate distribution is highly skewed to the right, with a small fraction of negative investments, 5.79%, a tiny fraction of inactive investments, 1.46%, and a large fraction of positive investments, 92.75%. When estimated via simulated method of moments, the standard investment model explains the average value premium, while simultaneously matching the key properties of the investment rate distribution, including the cross-sectional volatility, skewness, and the fraction of negative investments. The combined effect of costly reversibility and operating leverage is the key driving force behind the model’s quantitative performance.
    JEL: E22 E44 G12 G14
    Date: 2019–10
  2. By: Pavolov, Oscar (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: Recent literature has addressed how product creation amplifies economic fluctua- tions via the love of variety. Yet, the empirical evidence on variety e¤ects is sparse. The current paper demonstrates that a decreasing returns to scale production technol- ogy, which leads to increasing marginal costs, can similarly amplify business cycles. An expansion of the firm's product scope reduces marginal costs and gives an incentive to produce multiple products even if the variety e¤ects are entirely absent. The e¢ ciency gains from adjusting product scopes makes the economy more susceptible to sunspot equilibria.
    Keywords: Indeterminacy, sunspot equilibria, multi-product firms, business cycles
    JEL: E32
    Date: 2019
  3. By: Luca Picariello (Università di Napoli Federico II and CSEF.)
    Abstract: Workers can move across firms and carry along portable human capital. I present a model where workers' talent is observable but task allocation is non-contractible. To reduce mobility firms may inefficiently match workers with tasks that reduce their outside option. I show that by organizing the firm as an equity-partnership, the efficient task allocation can be implemented and profits increase. This result is attained by shifting control rights to workers who become partners, decide over task allocation and earn dividends as compensation. This provides a new rationale for the widespread presence of firms organized as partnerships in human-capital intensive industries.
    Keywords: Task Allocation, Retention, Control Rights, Partnerships.
    JEL: D86 J24 J54 M52
    Date: 2019–10–22
  4. By: Mathieu Gomes (CleRMa - Clermont Recherche Management - Clermont Auvergne - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne)
    Abstract: We examine the impact of corporate social responsibility (CSR) on mergers and acquisitions (M&A) target choices. We offer evidence that CSR performance of firms matter for M&A acquirers. Indeed, our results based on 608 deals between 2003 and 2014 reveal that target firms have on average higher CSR scores than similar non-target firms. We also show directly that a firm's CSR is positively associated with its propensity to become a M&A target. These results hold for all CSR dimensions (environment, social, and governance). Overall, our results suggest that CSR matters in M&A decisions.
    Keywords: Corporate social responsibility,Mergers and acquisitions,Matched-pair analysis,Logistic regression
    Date: 2019–09–02
  5. By: Jie Bai (Center for International Development at Harvard University); Ludovica Gazze; Yukun Wang
    Abstract: Collective reputation implies an important externality. Among firms trading internationally, quality shocks about one firm’s products could affect the demand of other firms from the same origin country. We study this issue in the context of a large-scale scandal that affected the Chinese dairy industry in 2008. Leveraging rich firm-product level administrative data and official quality inspection reports, we find that the export revenue of contaminated firms dropped by 84% after the scandal, relative to the national industrial trend, and the spillover effect on non-contaminated firms is measured at 64% of the direct effect. Notably, firms deemed innocent by government inspections did not fare any better than noninspected firms. These findings highlight the importance of collective reputation in international trade and the challenges governments might face in signaling quality and restoring trust. Finally, we investigate potential mechanisms that could mediate the strength of the reputation spillover. We find that the spillover effects are smaller in destinations where people have better information about parties involved in the scandal. New firms are more vulnerable to the collective reputation damage than established firms. Supply chain structure matters especially in settings where firms are less vertically integrated and exhibit fragmented upstream-downstream relationships.
    Keywords: Global Supply Chain
    JEL: F10 F14 L15 L66 O10 O19
    Date: 2019–10
  6. By: Montinaro, Marta; Scrimitore, Marcella
    Abstract: In a context of product innovation, we study two-part tariff licensing between a patentee and a potential rival which compete in a differentiated product market characterized by network externalities. The latter are shown to crucially affect the relative profitability of Cournot vs. Bertrand when a per unit royalty is applied. By contrast, we find that Cournot yields higher profits than Bertrand under ad valorem royalties, regardless of the strength of network effects.
    Keywords: licensing, product innovation, bertrand vs. cournot, network effects
    JEL: D43 L13 L20
    Date: 2019–03–06
  7. By: Robert W. Fairlie; Frank M. Fossen
    Abstract: A proposed explanation for why business creation is often found to increase in recessions is that there are two components to entrepreneurship – “opportunity” and “necessity” – the latter of which is mostly counter-cyclical. Although there is some agreement on the conceptual distinction between these two factors driving entrepreneurship, there is little consensus in the literature on empirical definitions. The goal of this paper is to propose an operational definition of opportunity versus necessity entrepreneurship based on the entrepreneur’s prior work status (i.e. based on previous unemployment) that is straightforward, based on objective information, and empirically feasible using many large, nationally representative datasets. We then explore the validity of the definitions with theory and empirical evidence. Using datasets from the United States and Germany we find that 80-90 percent of entrepreneurs are opportunity entrepreneurs. Applying our proposed definitions, we document that opportunity entrepreneurship is generally pro-cyclical and necessity entrepreneurship is strongly counter-cyclical both at the national levels and across local economic conditions. We also find that opportunity vs. necessity entrepreneurship is associated with the creation of more growth-oriented businesses. The operational definitions of opportunity and necessity entrepreneurship proposed here may be useful for distinguishing between the two types of entrepreneurship in future research.
    JEL: J23 J64 L26
    Date: 2019–10
  8. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Viklund-Ros, Ingrid (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Increased export experience on the board of non-exporting firms has a causal effect on their propensity to enter foreign markets in later periods. Using a universal set of Swedish employer-employee panel data for the period 2000-2014, this paper finds evidence on spillover from exporters to non-exporters through outside board directors. The identification strategy to account for endogenous selection of external board members relies on external instruments and applications of different instrumental variable approaches, capturing also unobserved heterogeneity. Our findings are robust to controlling for export background among managers and employees, as well as firm size, human capital, total factor productivity, productivity spillovers, firm location and industry classification.
    Keywords: Export spillovers; extensive margins of trade; outside directors; employer-employee data; endogeneity
    JEL: C26 F14 L20 M20 O33
    Date: 2019–10–16
  9. By: Stefano Quarta
    Abstract: The purpose of this paper is to analyze the role of the public firm in a spatial duopoly model a la Hotelling in the case of a low willingness to pay. We find that the presence of a public firm has the well known regulatory function in a market with a relative high willingness to pay; it is irrelevant in a market with a medium level of the willingness to pay; the relevance is for a low willingness to pay, where it ensures the full market coverage (as a result of the standard welfare maximization); finally, if the willingness to pay is very low, the public firm ensures a higher, but not full, market coverage with respect to the pure private case. Finally, we find that, for a low willingness to pay, the presence of the public firm is not sufficient to guarantee the optimal market configuration, so that the efficient level of welfare.
    Keywords: Mixed duopoly, full market coverage, low willingness to pay, efficient welfare.
    JEL: L13 C72 D71
    Date: 2019–11–12

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