nep-bec New Economics Papers
on Business Economics
Issue of 2020‒08‒24
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Innovation in risky markets: ownership and location advantages in the UK regions By Gagliardi, Luisa; Iammarino, Simona
  2. Entry and Exit, Unemployment, and Macroeconomic Tail Risk By Joshua Bernstein; Alexander W. Richter; Nathaniel A. Throckmorton
  3. Innovation and growth in the UK pharmaceuticals: the case of product and marketing introductions By Farasat A.S. Bokhari; Franco Mariuzzo; Anna Rita Bennato
  4. Common Ownership among Private Firms and Privatization Policies By Haraguchi, Junichi; Matsumura, Toshihiro
  5. The Age Distribution of Business Firms By Flavio Calvino; Daniele Giachini; Mattia Guerini
  6. Assessing the role of women in tourism related sectors in the Caribbean By Pastore, Francesco; Webster, Allan; Hope, Kevin
  7. Going Revolutionary: The Impact of 4IR Technology Development on Firm Performance By Mario Benassi; Elena Grinza; Francesco Rentocchini; Laura Rondi
  8. Unemployment Insurance as a Subsidy to Risky Firms By Bernardus Ferdinandus Nazar Van Doornik; Dimas Mateus Fazio; David Schoenherr; Janis Skrastins
  9. Going Bankrupt in China By Bo Li; Jacopo Ponticelli
  10. Soft-Capacity constrained price competition with entry and a minimum firm size: Chamberlin without differentiation By Marie-Laure Cabon-Dhersin; Nicolas Drouhin
  11. Court efficiency and aggregate productivity: the credit channel By Guzmán González-Torres; Giacomo Rodano
  12. The Firm Size and Leverage Relationship and Its Implications for Entry and Business Concentration By Satyajit Chatterjee; Burcu Eyigungor
  13. Internationalization strategies of multi-product firms: The role of technology By Daniel Baumgarten; Michael Irlacher; Karin Mayr-Dorn

  1. By: Gagliardi, Luisa; Iammarino, Simona
    Abstract: This article analyses the relationship between firm’s perception of market risk and engagement in innovation. We conceptualise this relationship by integrating insights from the management literature on innovation barriers with those derived from the international business and economic geography perspectives on the interplay of ownership and location advantages. By exploiting a firm-level panel dataset based on the UK Innovation Survey for the period 2002–2008, we test the relationship between perception of market risk and innovation behaviour in relation to firm ownership—i.e. multinational enterprises (MNEs) versus single domestic enterprises—and location—across regional contexts characterised by different degrees of technological dynamism. Our main results show that ownership advantages operate as a moderator by fundamentally affecting the direction of the relationship: while MNEs react positively to risk perception, single domestic firms reduce their innovation engagement as a strategy to cope with market uncertainty. Yet, ownership advantages play a pivotal role only in relatively inert or stable contexts, as in technologically dynamic regions differences between domestic firms and MNEs disappear.
    Keywords: Risk perception; Innovation behaviour; Ownership and Location advantages; Community Innovation Survey; UK Regions
    JEL: F23 O31 R11
    Date: 2018–09–01
  2. By: Joshua Bernstein; Alexander W. Richter; Nathaniel A. Throckmorton
    Abstract: This paper builds a nonlinear business cycle model with endogenous firm entry and exit and equilibrium unemployment. The entry and exit mechanism generates asymmetry and amplifies the transmission of productivity shocks, exposing the economy to significant tail risk. When calibrating the rates of entry and exit to match their shares of job creation and destruction, our quantitative model generates higher-order moments consistent with U.S. data. Firm exit particularly amplifies the severity and persistence of deep recessions such as the COVID-19 crisis. In the absence of entry and exit, the model generates almost no asymmetry or tail risk.
    Keywords: Unemployment; Firm Dynamics; Skewness; Labor Search; Nonlinear; COVID-19
    JEL: E24 E32 E37 J63 L11
    Date: 2020–06–24
  3. By: Farasat A.S. Bokhari (Centre for Competition Policy and School of Economics, University of East Anglia); Franco Mariuzzo (Centre for Competition Policy and School of Economics, University of East Anglia); Anna Rita Bennato (Centre for Competition Policy, University of East Anglia and Loughborough University)
    Abstract: New drug introductions are a key to growth for pharmaceutical firms. However not all innovations are the same and they may have differential effects that vary by firm size. We use quarterly sales data on UK pharmaceuticals in a dynamic panel model to estimate the impact of product (new drugs) and marketing (additional pack varieties) innovations within a therapeutic class on a firm's business unit growth. We find that product innovations lead to substantial growth in both the short and long run, whereas a new pack variety only produces short-term effects. The strategies are substitutes but the marginal effects are larger for product innovations relative to additional packs, and the effects are larger for smaller business units. Nonetheless, pack introductions offer a viable short-term growth strategy, especially for small and medium sized businesses.
    Keywords: Growth; Innovation; Size; Pharmaceuticals; Business unit
    JEL: L25 L65 O31 O32
    Date: 2019–10–01
  4. By: Haraguchi, Junichi; Matsumura, Toshihiro
    Abstract: This study investigates the relationship between the optimal privatization policy and the degree of common ownership among private firms by formulating a mixed oligopoly model in which one public firm competes against private firms under common ownership. We find that depending on the private firms' cost structure, one of the following three patterns emerges: (a) the optimal degree of privatization is increasing in the degree of common ownership, (b) the optimal degree of privatization is decreasing in the degree of common ownership, (c) an inverted U-shaped relationship exists between the two. If the marginal cost of private firms is constant, then (b) always emerges, regardless of whether the marginal cost of the public firm is increasing or constant. However, if the marginal cost of private firms is increasing, then all three patterns can emerge. Our results suggest that the property of the optimal privatization policy depends crucially on the cost structure of private firms.
    Keywords: overlapping ownership, optimal degree of privatization, mixed oligopolies, relative profit maximization, payoff interdependence
    JEL: H44 K21 L13 L32
    Date: 2020–07–31
  5. By: Flavio Calvino (OECD Directorate for Science, Technology and Innovation); Daniele Giachini (Sant’Anna School of Advanced Studies); Mattia Guerini (Université Côte d'Azur, CNRS, GREDEG, France; Sant’Anna School of Advanced Studies; Sciences Po., OFCE)
    Abstract: We investigate upon the shape and the determinants of the age distribution of business firms. By employing a novel dataset covering the population of French businesses, we highlight that a geometric law provides a reasonable approximation for the age distribution. However, relevant systematic deviations and sectoral heterogeneity appear. We develop a stochastic model of firm dynamics to explain the mechanisms behind this evidence and relate them to business dynamism. Results reveal a long-term decline in entry rates and lower survival probabilities of young firms. Our findings bear important implications for aggregate outcomes, notably employment growth.
    Keywords: Firm demographics, age distribution, business dynamism
    JEL: L11 L22 M13 M21
    Date: 2020–08
  6. By: Pastore, Francesco; Webster, Allan; Hope, Kevin
    Abstract: This study contributes to the rapidly growing literature on women in tourism. It focuses on a group of 13 Caribbean countries. The study analyses the impact of women in apical positions within firms (top manager or owner) on firm performance – productivity, profitability and female employment. For this both a decomposition model and the Inverse Probability Weighted Regression Adjustment (IPWRA) estimator are used. The analysis finds that opportunities for women in these positions in the Caribbean are constrained to less productive and profitable firms, as elsewhere. However, those firms with females at the top employ more women, particularly in management roles.
    Keywords: gender differences,tourism,Propensity score matching,IPWRA,Caribbean
    JEL: D22 J16 L26 L83 Z32
    Date: 2020
  7. By: Mario Benassi (Department of Economics, Management, and Quantitative Methods, University of Milan); Elena Grinza (Department of Management and Production Engineering, Politecnico di Torino); Francesco Rentocchini (Department of Economics, Management, and Quantitative Methods, University of Milan); Laura Rondi (Department of Management and Production Engineering, Politecnico di Torino)
    Abstract: Drawing on the knowledge-based view of the firm, we investigate whether firm performance is related to the accumulated stock of technological knowledge associated with the Fourth Industrial Revolution (4IR), and what contextual factors affect this relationship. We test our research questions on a longitudinal matched patent-firm data set on large firms filing 4IR patents at the European Patent Office (EPO). Our results, which control for a large number of patent- and firmlevel variables as well as firm fixed unobserved heterogeneity, show a significant and economically relevant positive association between the development of 4IR technologies and firm productivity. However, no significant relationship with firm profitability is detected, thereby suggesting that the returns from 4IR technological developments are slow to cash in. We also find that late innovators benefit more from the development of 4IR technological capabilities than early innovators and experience a substantial “boost effect”. We provide empirical support to an explanation of these findings in terms of the ability of late innovators to (i) manage the inherent complexity of the bundle of technologies comprising the 4IR and (ii) exploit profitable downstream applications of the 4IR.
    Keywords: Fourth Industrial Revolution (4IR); patenting; technology development; firm performance; longitudinal matched patent-firm data
    JEL: O33 D24 J24
    Date: 2020–06
  8. By: Bernardus Ferdinandus Nazar Van Doornik; Dimas Mateus Fazio; David Schoenherr; Janis Skrastins
    Abstract: We document that a more generous unemployment insurance (UI) system shifts labor supply from safer to riskier firms and reduces compensating wage differentials risky firms need to pay. Consequently, a more generous UI system increases risky firms’ value and fosters entrepreneurship by reducing new firms’ labor costs. Exploiting a UI reform in Brazil that affects only part of the workforce allows us to compare labor supply for workers with different degrees of UI protection within the same firm, sharpening identification of the results. Altogether, our results suggest that UI provides a transfer system from safe to risky firms.
    Date: 2020–07
  9. By: Bo Li; Jacopo Ponticelli
    Abstract: Using new case-level data we document a set of stylized facts on bankruptcy in China and study how the staggered introduction of specialized courts across Chinese cities affected insolvency resolution and the local economy. For identification, we compare cases handled by specialized versus traditional civil courts within the same city. Specialized courts hire better-trained judges and cut case duration by 35%. State-owned firms experience larger declines in case duration relative to privately-owned firms, consistent with higher judicial independence. Cities introducing specialized courts experience faster firm entry, larger increase in average capital productivity and reallocation of employment out of "zombie" firms-intensive sectors.
    JEL: G33 K22 O16
    Date: 2020–07
  10. By: Marie-Laure Cabon-Dhersin (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université); Nicolas Drouhin (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, UNICAEN - Université de Caen Normandie - NU - Normandie Université)
    Abstract: We consider a model of price competition in a homogeneous good, with soft-capacity constraints, in the special case of a Sone-Geary production function that implies a minimum firm size and leads to a U-shaped average cost function. We study free entry and obtain a Chamberlin-like result: zero profit and a positive markup at equilibrium.
    Keywords: price competition,soft-capacity constraint,tacit collusion,returns to scale,free-entry
    Date: 2020–07–31
  11. By: Guzmán González-Torres (Bank of Italy); Giacomo Rodano (Bank of Italy)
    Abstract: Credit contract enforcement influences financial market allocations and prices. Well-functioning credit markets enable firms to finance their operations. Can greater judicial efficiency therefore help to improve credit market allocations, by increasing firm dynamism and boosting aggregate productivity? We build a dynamic model of heterogeneous firms with short-term liquidity needs, in which two key features of enforcing credit contract proceedings, case resolution time and the expected recovery rate, directly affect credit supply. Once calibrated to replicate Italian firm dynamics, we use the model to analyze the extent to which court efficiency determines aggregate outcomes through the credit channel. In our economy, either increasing the average recovery rate on defaulted loans from 62 to 80 per cent, or reducing case resolution time from 9 to 5 years, raises average firm productivity by about 2 per cent. These gains are attained through a substantial improvement in the allocation of resources across firms.
    Keywords: financial markets, civil law, contracts, aggregate productivity, intertemporal firm choice
    JEL: E44 K12 O47
    Date: 2020–07
  12. By: Satyajit Chatterjee; Burcu Eyigungor
    Abstract: Larger firms (by sales or employment) have higher leverage. This pattern is explained using a model in which firms produce multiple varieties and borrow with the option to default against their future cash flow. A variety can die with a constant probability, implying that bigger firms (those with more varieties) have a lower coefficient of variation of sales and higher leverage. A lower risk-free rate benefits bigger firms more as they are able to lever more and existing firms buy more of the new varieties arriving into the economy. This leads to lower startup rates and greater concentration of sales.
    Keywords: Startup rates; leverage; firm dynamics
    JEL: E22 E43 E44 G32 G33 G34
    Date: 2020–07–30
  13. By: Daniel Baumgarten; Michael Irlacher; Karin Mayr-Dorn
    Abstract: High-performance frrms typically have two features in common: i) they produce in more than one country and ii) they produce more than one product. In this paper, we analyze the internationalization strategies of multi-product frrms at the product-level. We find that the most productive frrms sell core varieties via foreign direct investment (FDI) and export products with intermediate productivity. Shocks to trade costs and technology a ect the endogenous decision to export or produce abroad at the product-level and, in turn, the relative productivity between parents and aliates.
    Keywords: Multi-product firms; FDI; exports; exible manufacturing
    JEL: F12 F23 L25 L11
    Date: 2020–06

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