nep-bec New Economics Papers
on Business Economics
Issue of 2020‒04‒13
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Quantifying the Effect of Corporate Taxes on the Life Cycle of Firms By Neira, Julian; Singhania, Rish
  2. Structural Changes in Japanese SMEs: Business Dynamism in Aging Society and Inter-Firm Transaction Network By Gee Hee HONG; ITO Arata; SAITO Yukiko; Thi-Ngoc Anh NGUYEN
  3. Legal forms, organizational architecture, and firm failure: A large survival analysis of Russian corporations By Iwasaki, Ichiro; Kim, Byung-Yeon
  4. Dynamic Adverse Selection and Belief Update in Credit Markets By Kang, Kee-Youn; Jang, Inkee
  5. Firm-bank credit networks, business cycle and macroprudential policy By Riccetti, Luca; Russo, Alberto; Gallegati, Mauro
  6. Contracting, pricing, and data collection under the AI flywheel effect By Francis de Véricourt,; Huseyin Gurkan,
  7. Digitalization and New Product Development in Manufacturing SMEs: A Comparative Study of Germany and Japan By MOTOHASHI Kazuyuki; Christian RAMMER
  8. Optimal Reduction of Cartel Fines induced by the Settlement Procedure By Fotis, Panagiotis; Tselekounis, Markos
  9. Firm-level total factor productivity convergence in German electricity and gas industry By Claudiu Albulescu; Serban Miclea
  10. Wage Gains from Foreign Ownership: Evidence from Linked Employer-Employee Data By Köllő, János; Boza, István; Balázsi, László
  11. Impact of Multinational Enterprises on Competition, Productivity and Trade Spillovers across European Firms By Jan Hanousek; Evzen Kocenda; Pavla Vozarova
  12. Network compatibility, intensity of competition and process R&D: A Generalization By Sumit Shrivastav

  1. By: Neira, Julian; Singhania, Rish
    Abstract: How does corporate taxation affect the life cycle of firms? A change in profit-tax rates affects the life cycle of firms through wages and through firm selection. We quantify these effects by looking at the average size of young and mature US firms 30 years after the Reagan Tax Cuts. We disentangle the wage and the selection effects using a model of firm dynamics. We find that the wage effect of profit tax cuts is about six times stronger than the selection effect. A change in population growth affects average firm size by changing the composition of surviving firms. We find that the effect of declining population growth on average firm size is three times stronger for mature firms than for young firms.
    Keywords: Incidence; Corporate Taxation; Firm Lifecycle; Calibration
    JEL: E13 H22 H25 H32 L16 L26
    Date: 2020–03–19
  2. By: Gee Hee HONG; ITO Arata; SAITO Yukiko; Thi-Ngoc Anh NGUYEN
    Abstract: Smooth business succession is vital not only to the survival of a firm, but also to aggregate growth, employment and productivity in Japan. In this paper, we use a rich dataset of Japanese firms to document the changing patterns of firm exits in the context of the aging population and assess the economic costs of business succession issues. We find that the overall health of Japanese firms improved in recent years, with bankruptcy rate and the ratio of zombie firms both decreasing. However, the voluntary exit rate of firms, including profitable ones, has increased in recent years as elderly CEOs cannot find business successors. This has resulted in a deterioration of resource allocation and productivity at the aggregate level. Furthermore, voluntary exits have spillover effects through inter-firm networks and increase the likelihood of exits of connected firms, even when these connected firms are healthy. These findings underscore the importance of addressing business transition issues in a rapidly aging society.
    Date: 2020–01
  3. By: Iwasaki, Ichiro; Kim, Byung-Yeon
    Abstract: In this paper, we trace the survival status of more than 110,000 Russian firms from 2007–2015 and examine the relationship between legal forms of incorporation and firm survivability across industries and different periods of economic crisis and growth. Applying the Cox proportional hazards model, we find an optimal legal form that maximizes the probability of firm survival: closed joint-stock companies and those adopting limited liability survive longer than open joint-stock companies, partnerships, or cooperatives. This relationship is robust across periods of boom and recession and across industries.
    Keywords: Firm failure, legal form, Cox proportional hazards model, Russia
    JEL: D22 G01 G33 G34 P34
    Date: 2020–04
  4. By: Kang, Kee-Youn; Jang, Inkee
    Abstract: We develop a dynamic model of debt contracts with adverse selection and belief updates. In the model, entrepreneurs borrow investment goods from lenders to run businesses whose returns depend on entrepreneurial productivity and common productivity. The entrepreneurial productivity is the entrepreneur's private information, and the lender constructs beliefs about the entrepreneur's productivity based on the entrepreneur's business operation history, common productivity history, and terms of the contract. The model provides insights on the dynamic and cross-sectional relation between firm age and credit risk, cyclical asymmetry of the business cycle, slow recovery after a crisis, and the constructive economic downturn.
    Keywords: Adverse selection, Bayesian learning, Debt contracts, Belief update
    JEL: C78 D82 E44 G0
    Date: 2020–02–01
  5. By: Riccetti, Luca; Russo, Alberto; Gallegati, Mauro
    Abstract: We present an agent-based model to study firm-bank credit market interactions in different phases of the business cycle. The business cycle is exogenously set and it can give rise to various scenarios. Compared to other models in this literature strand, we improve the mechanism according to which the dividends are distributed, including the possibility of stock repurchase by firms. In addition, we locate firms and banks over a space and firms may ask credit to many banks, resulting in a complex spatial network. The model reproduces a long list of stylized facts and their dynamic evolution as described by the cross-correlations among model variables. The model allows us to test the effectiveness of rules designed by the current financial regulation, such as the Basel 3 countercyclical capital buffer. We find that the effectiveness of this rule changes in different business cycle environments and this should be considered by policy makers.
    Keywords: Agent-based modeling, credit network, business cycle, financial regulation, macroprudential policy
    JEL: C63 E32 E52 G1
    Date: 2020–01
  6. By: Francis de Véricourt, (ESMT European School of Management and Technology and E.CA Economics); Huseyin Gurkan, (ESMT European School of Management and Technology)
    Abstract: This paper explores how firms that lack expertise in machine learning (ML) can leverage the so-called AI Flywheel effect. This effect designates a virtuous cycle by which, as an ML product is adopted and new user data are fed back to the algorithm, the product improves, enabling further adoptions. However, managing this feedback loop is difficult, especially when the algorithm is contracted out. Indeed, the additional data that the AI Flywheel effect generates may change the provider’s incentives to improve the algorithm over time. We formalize this problem in a simple two-period moral hazard framework that captures the main dynam- ics between machine learning, data acquisition, pricing and contracting. We find that the firm’s decisions crucially depend on how the amount of data on which the machine is trained interacts with the provider’s effort. If this effort has a more (resp. less) significant impact on accuracy for larger volumes of data, the firm underprices (resp. overprices) the product. Further, the firm’s starting dataset, as well as the data volume that its product collects per user, significantly affect its pricing and data collection strategies. The firm leverages the virtuous cycle less for larger starting datasets and sometimes more for larger data volumes per user. Interestingly, the presence of incentive issues can induce the firm to leverage the effect less when its product collects more data per user.
    Keywords: Data, machine learning, pricing, incentives and contracting
    Date: 2020–03–03
  7. By: MOTOHASHI Kazuyuki; Christian RAMMER
    Abstract: This report presented descriptive results of a novel survey on IT practices in the context of new product development (NPD) in German and Japanese manufacturing SMEs. Based on dedicated questionnaire-based surveys in both countries, the report demonstrated that there are a number of commonalities between German and Japanese SMEs. It is found that German firms are more advanced in use of digital applications, while Japanese firms are more likely to be involved in collaboration for NPD. However, this difference disappears when the business environment faced by both samples is controlled. In terms of business performance impacts of digitalization and NPD process, a complementarity between them regarding specific business partners (supplier or customer firms) is found in Japan, while digital applications with multiple users is positively correlated with business performance in Germany.
    Date: 2020–03
  8. By: Fotis, Panagiotis; Tselekounis, Markos
    Abstract: EC’s Notice on the conduct of settlement procedures mentions that if the EC decides to reward a firm for settlement in the framework of its Notice, a reduction of 10% on cartel fine will be granted to that firm. In this paper, we compare the cartel profits with the ones derived when the cartel members decide to settle with competition authority so as to find the optimal reduction on cartel fines that fulfills EC’s Notice goal of inducing all cartel firms to participate in the settlement procedure. We find that such reduction is negatively correlated with the likelihood that the cartel would be detected, meaning that a higher probability of cartel detection is required for a lower reduction to be effective.
    Keywords: Antitrust policy; Competition policy; Cartel fines; Settlement Procedure
    JEL: K21 L13 L41
    Date: 2020–03–17
  9. By: Claudiu Albulescu (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers); Serban Miclea
    Abstract: This paper investigates the degree of total factor productivity convergence for the German electricity and gas firms. We use different approaches to compute the productivity level and several old and new panel unit root tests from the second generation to check the existence of a convergence process. For robustness purpose we compare the convergence between small and medium-sized enterprises and large companies. Our findings show the existence of the convergence process in terms of total factor productivity, result confirmed by all categories of tests we use. Therefore, an innovation transfer is recorded between German electricity and gas firms, transfer that is slightly higher for small and medium-sized enterprises. JEL codes: D24, O33
    Keywords: total factor productivity,convergence,panel unit root tests,firm-level data,German electricity and gas industry
    Date: 2020–03–20
  10. By: Köllő, János (Institute of Economics, Budapest); Boza, István (Central European University, Budapest); Balázsi, László (Central European University, Budapest)
    Abstract: We compare wages in multinational enterprises (MNEs) versus domestic firms, the earnings of domestic firm workers with past, future and no MNE experience, and estimate how the presence of ex-MNE peers affects the earnings of domestic firm employees. The analysis relies on monthly panel data covering half of the Hungarian population and their employers in 2003-2011. We identify the returns to MNE experience from changes of ownership, wages paid by new firms of different ownership, and the movement of workers between enterprises. We find high contemporaneous and lagged returns to MNE experience and significant spillover effects. Foreign acquisition has a moderate wage impact but there is a wide gap between new MNEs and domestic firms. The findings suggest that MNE experience is valued in the high-wage segment of the local economy, connected with the MNEs via worker turnover.
    Keywords: wage differentials, foreign direct investment, Hungary, multinational enterprises, wage spillover
    JEL: F23 J31 J62
    Date: 2020–03
  11. By: Jan Hanousek (CERGE-EI, Charles University); Evzen Kocenda; Pavla Vozarova (Faculty of Information Technology, Czech Technical University)
    Abstract: We analyze the impact of multinational enterprises (MNEs), via their foreign direct investment, on domestic firms in 30 European host economies, from 2001 to 2013. We incorporate international industrial and trade linkages into a standard theoretical framework and test them empirically on a unique dataset compiled from the Amadeus, Eurostat, UNComtrade and BACI data sources and aggregated at industry level. While controlling for horizontal, vertical, and export channels at the upstream and downstream levels, we show that the presence of MNEs significantly affects domestic firms by changing the degree of competition and improving productivity. The impact is not always positive, as domestic firms are often crowded-out, but the negative effect for an average firm is mostly small.
    Keywords: multinational enterprise (MNE), foreign direct investment (FDI), European firms, spillovers, international trade
    JEL: C33 F15 F21 F23 O24
    Date: 2020–04
  12. By: Sumit Shrivastav (Indira Gandhi Institute of Development Research)
    Abstract: This paper analyses implications of network compatibility and competition on process innovation in differentiated network goods duopoly. It shows that firms R&D investments are strategic substitutes (complements), if effective network compatibility is less (more) than product substitutability, regardless of the nature of competition. If R&D investments are strategic complements, firms always invest in process innovation and they invest more under Bertrand competition than under Cournot competition. If R&D investments are strategic substitutes, unlike Cournot firms, Bertrand firms dont always undertake process innovation; but, when Bertrand firms also undertake process innovation, Cournot-Bertrand R&D ranking depends on the strength of network externalities.
    Keywords: Network compatibility, Network Externalities, Process R&D, Bertrand-Cournot Compari- son, Product Differentiation
    JEL: L13 D43 O31
    Date: 2020–02

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