nep-bec New Economics Papers
on Business Economics
Issue of 2020‒06‒15
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Financial Frictions, Borrowing Costs, and Firm Size Across Sectors By Bento, Pedro; Ranasinghe, Ashantha
  2. CEO Succession and New-Firm Performance: Does Successor Origin Matter? By Masatoshi Kato; Yuji Honjo
  3. Determinants of firm investment: Evidence from Slovenian firm-level data By Lenarčič, Črt; Papadopoulos, Georgios
  4. Global Value Chains and the Productivity of Firms in MENA countries: Does Connectivity Matter? By Rym AYADI; Giorgia GIOVANNETTI; Enrico MARVASI; Chahir ZAKI
  5. Managerial ability, financial performance and goodwill impairment: A moderated mediation analysis By Huang, Qiubin; Xiong, Mengyuan; Xiao, Ming
  6. Corporate Social Responsibility and Optimal Pigouvian Taxation By Villena, Mauricio
  7. The Geography of Small Business Dynamics By Simon Firestone
  8. Accounting Total Factor Productivity of FDI Firm in Nepal By Bista, Raghu
  9. Discount Shock, Price-Rent Dynamics, and the Business Cycle By Jianjun Miao; Pengfei Wang; Tao Zha
  10. Financial Markets, Industry Dynamics and Growth By Maurizio Iacopetta; Raoul Minetti; Pietro Peretto
  11. Zombie Credit and (Dis-)Inflation: Evidence from Europe By Viral V. Acharya; Matteo Crosignani; Tim Eisert; Christian Eufinger
  12. Switching costs in competitive health insurance markets : the role of insurer's pricing strategies By Karine Lamiraud; Pierre Stadelmann
  13. Local product space and firm-level churning in exported products By Cilem Selin Hazir; Flora Bellone; Cyrielle Gaglio
  14. Firm Acquisitions by Family Firms: a Mixed Gamble Approach By Katrin Hussinger; Abdul-Basit Issah

  1. By: Bento, Pedro (Texas A&M University); Ranasinghe, Ashantha (University of Alberta, Department of Economics)
    Abstract: We document new evidence that financial under-development is associated with higher borrowing rates, lower investment in productivity, a smaller share of large firms, and smaller average firm size, both in manufacturing and services. To account for these patterns, we develop a two-sector economy with heterogeneous entrepreneurs that face financial frictions in the form of borrowing rates that rise with the cost of monitoring risky investments. The model is tractable and can be solved analytically, making clear predictions for the impact of high borrowing costs on investment, the share of large firms, and average firm size across sectors, consistent with the evidence we document. Varying monitoring costs to generate observed cross-country differences in borrowing rates, the model can account for one-third of the log-variance of observed average firm size across sectors, over 20 percent of the variation in investment, and a 30 percent drop in aggregate productivity, all substantial relative to the literature.
    Keywords: financial development; borrowing; firm size; investment; aggregate productivity
    JEL: O10 O14 O41 O43
    Date: 2020–05–28
  2. By: Masatoshi Kato (School of Economics, Kwansei Gakuin University); Yuji Honjo (Faculty of Commerce, Chuo University)
    Abstract: This study explores the impact of chief executive officer (CEO) succession on new-firm performance, using a sample of Japanese firms founded during the period 2003–2010. When controlling for firm- and CEO-specific characteristics, we find that new firms with experience in CEO succession are more likely to increase sales than those without it. The results also reveal that CEO succession influences sales growth among new firms, but not employment growth. Moreover, based on successor origin, we classify the types of CEO succession, such as inside, outside, and family succession. The results reveal that both insider and outsider succession influences sales growth, while family succession does not.
    Keywords: CEO succession; Growth; Insider succession; Outsider succession; New firm; Successor origin.
    JEL: M13 L25
    Date: 2020–05
  3. By: Lenarčič, Črt; Papadopoulos, Georgios
    Abstract: This paper examines the role of corporate balance sheet positions in determining Slovenian firms' investment behaviour. The analysis is based on the theoretical framework of the financial accelerator which suggests that firms' financial positions influence their real behaviour. The underlying hypotheses of the financial accelerator are tested, namely its asymmetric effect during crises and in respect to firms' size. In addition, the existence of differences in the relationship between the balance sheet variables and investment across various sectors is examined. The results indicate that indeed balance sheet strength is an important determinant of Slovenian firms' investment behaviour. Moreover, this relationship is affected by a firm's size but the effect of the crisis or its sectoral specialization do not seem to materially affect it.
    Keywords: Firm investment; financial accelerator; firm-level data
    JEL: C33 D22 E22
    Date: 2020–04–18
  4. By: Rym AYADI; Giorgia GIOVANNETTI; Enrico MARVASI; Chahir ZAKI
    Abstract: We provide new evidence on the participation of firms within Global Value Chains (GVCs) for a large pool of MENA countries included in the World Bank Enterprise Surveys (WBES). Making use of several firm-level GVC participation indices, we find a positive association with firm productivity gains. Based on this result, we further investigate the complexity of GVC relationships and examine how sector/country connectivity affects firm productivity. Using a multi-level model, we augment our analysis by including centrality indicators calculated on the intermediate trade network, constructed from the EORA input-output tables. Positioning within the network structure of trade in intermediate products also plays a role. Our results indicate a positive effect of the connectivity of the sector on the Total Factor Productivity (TFP) of firms. Results remain robust after we control for the endogeneity between firm productivity and participation in GVCs.
    Keywords: global value chains, firm heterogeneity, MENA region, trade networks, productivity.
    JEL: F14 F15 L23 L25
    Date: 2020
  5. By: Huang, Qiubin; Xiong, Mengyuan; Xiao, Ming
    Abstract: This paper examines whether and how managerial ability affects the likelihood of goodwill impairment of Chinese publicly listed companies over the period 2007-2017. We document a negative relationship between goodwill impairment and managerial ability, and uncover the mediation effect of corporate financial performance. Moreover, we find that the mediation effect is moderated by firms’ earnings smoothing motivation and state ownership. The results suggest that when a company has the motivation to smooth earnings or is owned by the government, higher managerial ability of the company does not necessarily reduce the likelihood of goodwill impairment. The findings have important implications for investors and regulators.
    Keywords: Goodwill impairment; Managerial ability; Financial performance; Moderated mediation
    JEL: G32 G34 M41
    Date: 2020–05–11
  6. By: Villena, Mauricio
    Abstract: We formally study Pigouvian taxation in a duopoly market in which a CSR firm interacts with a profit maximizing firm. Unlike previous literature, we consider three different scenarios: (i) the CSR firm acts as a consumer-friendly firm, cares for not only its profits but also consumer surplus, as a proxy of its concern for its "stakeholders" or consumers; (ii) the CSR firm main objective is a combination of its own profit and the environment, caring for the environmental damage produced by the market in which it interacts; and (iii) the CSR firm is both consumer and environmental friendly. Finally, we compare the different Pigouvian rules derived with the first best competitive market solution and the monopoly/duopoly second best solutions.
    Keywords: Corporate social responsibility, consumer-friendly firm, environment-friendly firm, Mixed Duopoly, Emission Taxation
    JEL: H23 L13 L31 Q5 Q50
    Date: 2019–12–03
  7. By: Simon Firestone
    Abstract: Business dynamism is a micro-foundation for economic growth. Productivity gains come from a reallocation of resources from less efficient to more efficient firms, often through entry of new firms and exit of existing firms.
    Date: 2020–05–28
  8. By: Bista, Raghu
    Abstract: Economic Reforms towards economic liberalization and privatization is a good prescription to attract FDI in productive sectors. In 1990, Nepal liberalized her economy to create investment environment and destination of FDI by minimizing structural and institutional barriers and constraints for promoting TFP of productive sectors. This study investigates empirically what is TFP growth of FDI in Nepal in 1990 after economic liberalization process. We use econometric model based on Cobb Douglas production function and theoretical model of TFP growth accounting method. The econometric and non-parametric TFP estimation provides mostly positive TFP growth of FDI firms in Nepal. Few cases were influenced by political and security disturbances. Almost positive TFP growths have increasing productivity but there are still lower than expectation. There are still problems of massive inferior labor, no significant technological and financial transfer and poor business environment. Issues of continuity and stability between two periods indicate unpredictable situation of productivity.
    Keywords: FDI, TFP growth, economic reform, liberalization
    JEL: C54 C6 C61 E2 E23 E24 J5 O4 O47
    Date: 2019–02–05
  9. By: Jianjun Miao; Pengfei Wang; Tao Zha
    Abstract: The price-rent ratio in commercial real estate is highly volatile, and its variation comoves with the business cycle. To account for these two facts, we develop a dynamic general equilibrium model that explicitly introduces a rental market and incorporates the liquidity constraint on an individual firm's production as a key ingredient. Our estimation identifies the discount shock as the most important factor in driving price-rent dynamics and linking the dynamics in the real estate market to those in the real economy. We illustrate the importance of the liquidity premium and endogenous total factor productivity (TFP) in the nexus of the financial and real sectors.
    Keywords: comovements; liquidity premium; stochastic discount factor; asset pricing; production economy; heterogenous firms; endogenous TFP; general equilibrium
    JEL: E22 E32 E44
    Date: 2020–05–21
  10. By: Maurizio Iacopetta (Observatoire français des conjonctures économiques); Raoul Minetti (Michigan State University); Pietro Peretto (Duke University)
    Abstract: This article introduces corporate governance frictions into a growth model with endogenous market structure. Managers engage in corporate resource diversion and empire building. Shareholders discipline managers with incentive compensation contracts. A reform that mitigates corporate governance frictions boosts firms’ entry and, for a given market structure, has an ambiguous impact on incumbents’ return to product improvement. However, as the market structure adjusts, becoming more diffuse, incumbents invest less in product improvement. Calibrating the model to U.S. data, we find that a reform of the kind recently enacted in several advanced economies can lead to a welfare loss.
    Keywords: Financial markets; Industry dynamics; Growth
    Date: 2019–07
  11. By: Viral V. Acharya; Matteo Crosignani; Tim Eisert; Christian Eufinger
    Abstract: We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, “zombie credit” can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in zombie credit post 2012, annual inflation in Europe during 2012-2016 would have been 0.45 percentage points higher.
    JEL: E31 E44 G21
    Date: 2020–05
  12. By: Karine Lamiraud (Essec Business School); Pierre Stadelmann
    Abstract: Our article deals with pricing strategies in Swiss health insurance markets and focuses on the relationship between basic and supplementary insurance. We analyzed how firms' pricing strategies (i.e., pricing of basic and supplementary products) can create switching costs in basic health insurance markets, thereby preventing competition in basic insurance from working properly. More specifically, using unique market and survey data, we investigated whether firms use bundling strategies or supplementary products as low-price products to attract and retain basic insurance consumers. To our knowledge, this is the first paper to analyze these pricing strategies in the context of insurance/health insurance. We found no evidence of bundling in the Swiss setting. We did however observe that firms used low-price supplementary products that contributed to lock in consumers. A majority of firms offered at least one of such product at a low price. None offered low-price products in both basic and supplementary markets. Low-price insurance products differed across firms. When buying a lowprice supplementary product, consumers always bought their basic contract from the same firm. Furthermore, those who opted for low-price supplementary products were less likely to declare an intention to switch basic insurance firms in the near future. This result was true for all risk category levels.
    Keywords: Managed Competition,Swiss Health Care Systems,Pricing,Consumer Inertia,Switching Costs,Supplementary Insurance,low-price supplementary product,Bundling
    Date: 2020–05–13
  13. By: Cilem Selin Hazir (Leibniz Institute of Ecological Urban and Regional Development); Flora Bellone (Observatoire français des conjonctures économiques); Cyrielle Gaglio (Observatoire français des conjonctures économiques)
    Abstract: This article explores the determinants of changes to the range of exports at the firm level with a focus on the role played by the firm’s local environment. It extends the model developed by Bernard et al. (2010) to a multiregional setting to account for localized externalities. The model is tested using French micro-data on monoregional manufacturing firms covering the period 2002–2007. Our main finding is that the local product space has an impact on exporters’ product-market entry and exit decisions. Firms tend to modify their exported product mix to achieve congruence with the core products of the locality. Also, firms receive higher revenue from the export of products that are more related to the core capabilities of the locality.
    Keywords: Local product space; Product relatedness; Firm export churning
    JEL: L25 F14 C49
    Date: 2019–12
  14. By: Katrin Hussinger (CREA, Université du Luxembourg); Abdul-Basit Issah (LBG Open Innovation in Science Center, Vienna, Austria)
    Abstract: This study elucidates the mixed gamble confronting family firms when considering a related firm acquisition. The socioemotional and financial wealth trade-off associated with related firm acquisitions as well as their long-term horizon turns family firms more likely to undertake a related acquisition than non-family firms, especially when they are performing above their aspiration level. Post-merger performance pattern confirm that family firms are able to create long-term value "through these acquisitions and by doing so they surpass non-family firms. These findings stand in " contrast to commonly used behavioural agency predictions, but can be reconciled with theory through a mixed gambles’ lens.
    Keywords: Firm acquisitions; related firm acquisitions; mixed gamble; aspiration level, socioemotional wealth, value creation
    JEL: G34 L10 L20 M20
    Date: 2019

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