nep-bec New Economics Papers
on Business Economics
Issue of 2020‒09‒14
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Corporate zombies: Anatomy and life cycle By Ryan Niladri Banerjee; Boris Hofmann
  2. Uncertainty, Imperfect Information, and Expectation Formation over the Firms's Life Cycle By Cheng Chen; Tatsuro Senga; Chang Sun; Hongyong Zhang
  3. Intangible Capital, Markups and Pro fits By Sandström, Maria
  4. Whom Should I Merge With? How product substitutability affects merger profitability By Cellini, Roberto
  5. Rational Organizational Structure: For Brick-and-Mortar Lifestyle Retailers in India to Overcome Diseconomies of Scale and Protect Firm’s Sustainability (ROLS-b) By H. R., Ganesha; Aithal, Sreeramana
  6. Assessing the Role of Women in Tourism Related Sectors in the Caribbean By Pastore, Francesco; Webster, Allan; Hope, Kevin
  7. Data vs collateral By Leonardo Gambacorta; Yiping Huang; Zhenhua Li; Han Qiu; Shu Chen
  8. Where do we go? VC firm heterogeneity and the exit routes of newly listed high-tech firms By Diego Useche; Pommet Sophie
  9. Do women on corporate boards influence corporate social performance? A control function approach By Rey Dang; Hocine Houanti; Jean-Michel Sahut; Michel Simioni
  10. Competition Laws, Norms and Corporate Social Responsibility By Wenzhi Ding; Ross Levine; Chen Lin; Wensi Xie
  11. Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions By Daron Acemoglu; Alireza Tahbaz-Salehi
  12. Improving Management through Worker Evaluations: Evidence from Auto Manufacturing By Jing Cai; Shing-Yi Wang
  13. The Impact of the COVID-19 Crisis on European Businesses: Evidence from Surveys in Austria, Germany and Spain By Raquel García; Christian Gayer; Werner Hölzl; Sergio Payo; Andreas Reuter; Klaus Wohlrabe
  14. Learning low-frequency temporal patterns for quantitative trading By Joel da Costa; Tim Gebbie
  15. How Do Restrictions on High-Skilled Immigration Affect Offshoring? Evidence from the H-1B Program By Britta Glennon
  16. Choosing Investment Managers By Amit Goyal; Sunil Wahal; M. Deniz Yavuz
  17. Credit ratings and firm life-cycle By Magnus Blomkvist; Anders Löflund; Hitesh Vyas

  1. By: Ryan Niladri Banerjee; Boris Hofmann
    Abstract: Using firm-level data on listed non-financial companies in 14 advanced economies, we document a rise in the share of zombie firms, defined as unprofitable firms with low stock market valuation, from 4% in the late 1980s to 15% in 2017. These zombie firms are smaller, less productive, more leveraged and invest less in physical and intangible capital. Their performance deteriorates several years before zombification and remains significantly poorer than that of non-zombie firms in subsequent years. Over time, some 25% of zombie companies exited the market, while 60% exited from zombie status. However, recovered zombies underperform compared to firms that have never been zombies and they face a high probability of relapsing into zombie status.
    Keywords: zombie companies, firm behaviour, economic dynamism, productivity growth, bankruptcy
    JEL: D22 D24 E43 G33
    Date: 2020–09
  2. By: Cheng Chen; Tatsuro Senga; Chang Sun; Hongyong Zhang
    Abstract: Using a long-panel dataset of Japanese firms that contains firm-level sales forecasts, we provide evidence on firm-level uncertainty and imperfect information over their life cycle. We find that firms make non-negligible and positively correlated forecast errors. However, they make more precise forecasts and less correlated forecast errors when they become more experienced. We then build a model of heterogeneous firms with endogenous entry and exit where firms gradually learn about their demand by using a noisy signal. In our model, informational imperfections lead firms to enter the market without being fully informed. Moreover, young firms tend to wait long before entering or exiting the market faced with high uncertainty about their demand. The former learning effect, combined with the latter real-options effect, adversely affect firms’ entry decisions and thus resource allocation. Our quantitative exercise substantiates the importance of accumulation of experience for firms’ post-entry dynamics and aggregate productivity.
    Keywords: firm expectations, forecast errors, uncertainty, learning, productivity
    JEL: D83 D84 E22 E23 F23 L20
    Date: 2020
  3. By: Sandström, Maria (Department of Economics)
    Abstract: Can an increasing importance of intangible capital in the economy explain increases in markups and profits? I use a heterogeneous firm model to show how intangible capital is related to markups and profits at the industry level. The uncertainty and scalability properties of intangible capital imply that firms that succeed in their intangible capital investment can charge high markups relative to other firms, whereas firms that fail will exit. However, the high markups do not lead to any economic profits in the industry as a whole if they only serve to cover the total fixed costs of intangible capital. To empirically examine the relationship between intangible capital, markups and profits, I study average markups and profit shares in a panel of Swedish industries. There is evidence of a positive relationship between intangible capital and average industry markups. However, the evidence of the relationship between intangible capital and profits is less conclusive.
    Keywords: Intangible capital; Markups; Profits; Labor share; Market Power
    JEL: D24 E22 L11
    Date: 2020–08–14
  4. By: Cellini, Roberto
    Abstract: The paper presents a simple model of oligopoly, in which three firms supply differentiated products. The degree of product substitutability is not uniform across goods. We investigate the merger profitability, and we show that profitability depends on the degree of good differentiation. Contrary to what seems to emerge from different models, we find that merger between firms that supply “more similar” product is more profitable as compared to merger between firms supplying more differentiated goods.
    Keywords: oligopoly; merger; profitability; merger paradox
    JEL: D43 L13
    Date: 2020–06
  5. By: H. R., Ganesha; Aithal, Sreeramana
    Abstract: A majority of organized brick-and-mortar lifestyle retailers in India believe that the brick-and-mortar retailing model ensures economies of scale as they keep opening new stores. Having more stores might help retailers to gain product sourcing advantages in addition to generating additional revenue to the firm but at the same time, it fails to provide any other benefits towards economies of scale as every new store comes with new one-time capital expenditures and recurring fixed expenses. Another misconception is that lifestyle retailing must follow an organizational structure (OS) that is adopted by their parent company and hence a majority of OS adopted by lifestyle retailers in India is dependent on organizational form. This study was not limited to just recommending a rational OS based on exploratory research and existing theories in the OS domain. Once the ROLS-b was designed, we have experimented with the proposed rational OS on one of the ten lifestyle retailers in the study to test the validity and reliability. Experimentation results empirically and qualitatively demonstrate that the existing belief of brick-and-mortar lifestyle retailers in India which assumes economies of scale and long-term firm’s sustainability as the retailer increases the store count is just a misconception and does not hold. On the other hand, when we experimented the ROLS-b for over twelve months at over 25 percent stores of a select retailer, results demonstrate that these stores which have gone through the treatment have shown 5.34 times improvement in the store-level profit and 1.97 times in the firm-level profit in addition to eliminating a majority of gaps found in the existing OS that was leading to diseconomies of scale and deteriorating firm’s performance.
    Keywords: Indian Retail; Brick-and-Mortar Retail; Lifestyle Retail; Firm’s Sustainability; Sustainable Business; Organizational Structure; Diseconomies of Scale; Organizational Form; Degree of Integration; Atmospheric Consequences; Bureaucratic Insularity; Incentive Limits; Communication Distortion; Bounded Rationality; ROLS-b
    JEL: M1 M14 M3 M30
    Date: 2020–08–01
  6. By: Pastore, Francesco (Università della Campania Luigi Vanvitelli); Webster, Allan (Bournemouth University); Hope, Kevin (Caribbean Development Bank)
    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: 2020–07
  7. By: Leonardo Gambacorta; Yiping Huang; Zhenhua Li; Han Qiu; Shu Chen
    Abstract: The use of massive amounts of data by large technology firms (big techs) to assess firms’ creditworthiness could reduce the need for collateral in solving asymmetric information problems in credit markets. Using a unique dataset of more than 2 million Chinese firms that received credit from both an important big tech firm (Ant Group) and traditional commercial banks, this paper investigates how different forms of credit correlate with local economic activity, house prices and firm characteristics. We find that big tech credit does not correlate with local business conditions and house prices when controlling for demand factors, but reacts strongly to changes in firm characteristics, such as transaction volumes and network scores used to calculate firm credit ratings. By contrast, both secured and unsecured bank credit react significantly to local house prices, which incorporate useful information on the environment in which clients operate and on their creditworthiness. This evidence implies that a greater use of big tech credit – granted on the basis of machine learning and big data – could reduce the importance of collateral in credit markets and potentially weaken the financial accelerator mechanism.
    Keywords: big tech, big data, collateral, banks, asymmetric information, credit markets
    JEL: D22 G31 R30
    Date: 2020–09
  8. By: Diego Useche (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); Pommet Sophie (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we study how the support of heterogeneous venture capital firms (VCs), that is independent venture capital firms (IVCs), bank-affiliated venture capital firms (BVCs), and corporate venture capital firms (CVCs), shapes the delisting route of companies through business failure and merger and acquisitions (MandAs), while distinguishing between European MandAs and extra-EU MandAs after the initial public offering (IPO). We find that the influence of the VCs in the firms' post-IPO delisting varies according to the mode of delisting and the type of venture capitalist. In particular, we find that the presence of leading IVC and BVC investments before IPO is related to a lower likelihood of exiting the stock market through business failure but does not significantly affect the likelihood of MandAs. In contrast, the presence of CVC investors is related to a higher likelihood of delisting through extra-EU MandAs.
    Keywords: Independent venture capital,IPO survivability,Corporate venture capital,Bank-affiliated venture capital,High-tech firms,Firm failure,Cross-border MandAs
    Date: 2020
  9. By: Rey Dang (ISTEC - Institut supérieur des Sciences, Techniques et Economie Commerciales - ISTEC); Hocine Houanti (Excelia Group | La Rochelle Business School); Jean-Michel Sahut (IDRAC Business School - Ecole supérieure de commerce); Michel Simioni (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes)
    Abstract: We examine if women on corporate boards (WOCB) influence a firm's corporate social performance (CSP). To do this, we utilize stakeholder theory. From an empirical standpoint, we use the control function (CF) approach suggested by Wooldridge (2015), which takes into account the issue of endogeneity raised in the literature (namely, omitted variables, reverse causality, and dynamic endogeneity). Using a sample of firms from the S&P 500 between 2004 and 2015, we find that WOCB have a positive and significant effect (at the 5% level) on CSP. We compare our results to more traditional approaches (pooled OLS, the fixed-effects model, and system GMM). We shed light on an issue that is still considered controversial (Byron and Post, 2016).
    Keywords: Control function,Women on corporate boards,Corporate social responsibility,Corporate social performance,Stakeholder theory
    Date: 2020
  10. By: Wenzhi Ding; Ross Levine; Chen Lin; Wensi Xie
    Abstract: Theory offers differing perspectives and predictions about the impact of product market competition on corporate social responsibility (CSR). Using firm-level data on CSR from 2002 through 2015 and panel data on competition laws in 48 countries, we discover that intensifying competition induces firms to increase CSR activities. Analyses indicate that (a) intensifying competition spurs firms to invest more in CSR as a strategy for strengthening relationships with workers, suppliers, and customers and (b) the competition-CSR effect is stronger in economies where social norms prioritize CSR-type activities, e.g., treating others fairly, satisfying implicit agreements, protecting the environment, etc.
    JEL: K21 L4 M14 Z13
    Date: 2020–07
  11. By: Daron Acemoglu; Alireza Tahbaz-Salehi
    Abstract: This paper studies how firm failures and the resulting disruptions to supply chains can amplify negative shocks. We develop a non-competitive model where customized supplier-customer relations increase productivity, and the relationship-specific surplus generated between firms and their suppliers is divided via bargaining. Changes in productivity alter the distribution of surplus throughout the economy and determine which firms are at the margin of failure. A firm’s failure may spread to its suppliers and customers and to firms in other parts of the production network. We provide existence, uniqueness, and a series of comparative statics results, and show how the response of the equilibrium production network may propagate recessionary shocks.
    JEL: D57 E23 E32
    Date: 2020–07
  12. By: Jing Cai; Shing-Yi Wang
    Abstract: Using a randomized experiment with an automobile manufacturing firm in China, we measure the effects of letting workers evaluate their managers on worker and firm outcomes. In the treatment teams, workers evaluate their supervisors monthly. We find that providing feedback leads to significant reductions in worker turnover and increases in team-level productivity. In addition, workers report higher levels of happiness and positive mood. The evidence suggests that these results are driven by changes in the behavior of managers and an overall better relationship between managers and workers.
    JEL: D22 O1
    Date: 2020–08
  13. By: Raquel García; Christian Gayer; Werner Hölzl; Sergio Payo; Andreas Reuter; Klaus Wohlrabe
    Abstract: This note presents the results of two ad-hoc questions on the impact of the corona-crisis, which were included in the April-wave of the European Commission’s Joint Harmonised EU Programme of Business Surveys. The questions were asked to German, Spanish and Austrian firms in the industry, services, retail trade and construction sectors and focused on the effect of the crisis on expected annual turnover and the ability of firms to survive in the presence of the prevailing confinement measures. The results illustrate the sweeping effect of the crisis on firms’ turnover and provide alarming figures on a potential insolvency/bankruptcy wave caused by the current confinement measures.
    Date: 2020
  14. By: Joel da Costa; Tim Gebbie
    Abstract: We consider the viability of a modularised mechanistic online machine learning framework to learn signals in low-frequency financial time series data. The framework is proved on daily sampled closing time-series data from JSE equity markets. The input patterns are vectors of pre-processed sequences of daily, weekly and monthly or quarterly sampled feature changes. The data processing is split into a batch processed step where features are learnt using a stacked autoencoder via unsupervised learning, and then both batch and online supervised learning are carried out using these learnt features, with the output being a point prediction of measured time-series feature fluctuations. Weight initializations are implemented with restricted Boltzmann machine pre-training, and variance based initializations. Historical simulations are then run using an online feedforward neural network initialised with the weights from the batch training and validation step. The validity of results are considered under a rigorous assessment of backtest overfitting using both combinatorially symmetrical cross validation and probabilistic and deflated Sharpe ratios. Results are used to develop a view on the phenomenology of financial markets and the value of complex historical data-analysis for trading under the unstable adaptive dynamics that characterise financial markets.
    Date: 2020–08
  15. By: Britta Glennon
    Abstract: Skilled immigration restrictions may have secondary consequences that have been largely overlooked in the immigration debate: multinational firms faced with visa constraints have an offshoring option, namely, hiring the labor they need at their foreign affiliates. If multinationals use this option, then restrictive migration policies are unlikely to have the desired effects of increasing employment of natives, but rather have the effect of offshoring jobs. Combining visa data and comprehensive data on US multinational firm activity, I find that restrictions on H-1B immigration caused foreign affiliate employment increases at the intensive and extensive margins, particularly in Canada, India, and China.
    JEL: F16 F22 F23 J61 O3
    Date: 2020–07
  16. By: Amit Goyal (University of Lausanne; Swiss Finance Institute); Sunil Wahal (Arizona State University (ASU) - Finance Department); M. Deniz Yavuz (Purdue University - Krannert School of Management)
    Abstract: We study how plan sponsors choose investment management firms from their opportunity set when delegating $1.6 trillion in assets between 2002 and 2017. Two factors play an influential role in choice: pre-hiring returns, and pre-existing personal connections between personnel at the plan (or consultant advising the plan), and the investment management firm. Post-hiring returns for chosen firms are significantly lower than those for unchosen firms. The post-hiring returns of firms with relationships are, at best, indistinguishable from those without relationships, and often significantly worse. While relationships are conducive to asset gathering by investment managers, they do not appear to generate commensurate benefits for plan sponsors via higher gross returns or lower fees.
    JEL: G10 G20 G23
    Date: 2020–07
  17. By: Magnus Blomkvist (Audencia Business School); Anders Löflund (Hanken School of Economics); Hitesh Vyas
    Abstract: Credit ratings display an inverse U-shaped relation over the corporate life-cycle. Firms' likelihood to obtain a rating initially increases over the life-cycle as reputation increases and asymmetric information is reduced. As investment opportunities diminish during the shakeout and decline phases the benefit of having a rating decreases. The economic effect is substantial: transitioning from the introduction to the growth phase increases the rating likelihood from 6.7% to 30%.
    Date: 2020–05

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