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on Business Economics |
| By: | Ewens, Michael; Malenko, Nadya |
| Abstract: | Venture capital (VC) backed firms face neither the governance requirements nor a major separation of ownership and control of their public peers. These differences suggest that independent directors could play a unique role on private firm boards. This paper explores the dynamics of VC-backed startup boards using new data on board member entry, exit, and individual director characteristics. We document several new facts about board size, the allocation of control, and composition dynamics. At formation, a typical board has four members and is entrepreneur-controlled. Independent directors are found on the median board after the second financing event, when control over the board becomes shared, with independent directors holding the tie-breaking vote. These patterns are consistent with independent directors playing both a mediating and advising role over the startup life cycle, and thus representing another potential source of value-add to entrepreneurial firm performance. |
| Keywords: | Allocation of control; Board Of Directors; corporate governance; Independent Directors; Mediation role; venture capital |
| JEL: | G24 G34 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15024&r= |
| By: | Eero Mäkynen (University of Turku, Finland.); Oskari Vähämaa (University of Helsinki, Finland.) |
| Abstract: | We develop a measure of static misallocation that separates uncertainty from misallocation generated by tax-like distortions. In the Finnish firm-level data, uncertainty accounts for the majority of ex post misallocation and explains a strong decreasing age-dependent trend in it. To understand these observations, we set up a life-cycle model of firm growth where new firms have to learn their productivity. We match our model with the salient features of the data and show that our model implies idiosyncratic distortions, in line with our accounting approach. According to our quantitative results, uncertainty suppresses output by 38%, while misallocation has a 26% negative effect on output. |
| Keywords: | firm dynamics, uncertainty, misallocation |
| JEL: | D24 E23 L11 O47 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp146&r= |
| By: | Huseyin Gurkan (ESMT European School of Management and Technology); Francis de Véricourt (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 dynamics among ML, 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 (less) significant impact on accuracy for larger volumes of data, the firm underprices (overprices) the product. Interestingly, these distortions sometimes improve social welfare, which accounts for the customer surplus and profits of both the firm and provider. Further, the interaction between incentive issues and the positive externalities of the AI Flywheel effect has important implications for the firm's data collection strategy. In particular, the firm can boost its profit by increasing the product's capacity to acquire usage data only up to a certain level. If the product collects too much data per user, the firm's profit may actually decrease, i.e., more data is not necessarily better. As a result, the firm should consider reducing its product's data acquisition capacity when its initial dataset to train the algorithm is large enough. |
| Keywords: | Data, machine learning, data product, pricing, incentives, contracting |
| Date: | 2020–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-20-01_r2&r= |
| By: | Chor, Davin; Manova, Kalina; Yu, Zhihong |
| Abstract: | Global value chains have fundamentally transformed international trade and development in recent decades. We use matched firm-level customs and manufacturing survey data, together with Input-Output tables for China, to examine how Chinese firms position themselves in global production lines and how this evolves with productivity and performance over the firm lifecycle. We document a sharp rise in the upstreamness of imports, stable positioning of exports, and rapid expansion in production stages conducted in China over the 1992-2014 period, both in the aggregate and within firms over time. Firms span more stages as they grow more productive, bigger and more experienced. This is accompanied by a rise in input purchases, value added in production, and fixed cost levels and shares. It is also associated with higher profits though not with changing profit margins. We rationalize these patterns with a stylized model of the firm lifecycle with complementarity between the scale of production and the scope of stages performed. |
| Keywords: | China; Firm Heterogeneity; firm lifecycle; global value chains; Production line position; Upstreamness |
| JEL: | F10 F14 F23 L23 L24 L25 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15225&r= |
| By: | Template-Type: ReDIF-Paper 1.0; Takahiro Ishii (Graduate School of Economics, Osaka University) |
| Abstract: | The present study examines the effects of free technology sharing by a monopolistic final-good firm with other final-good firms. To this end, we consider two cases-first, where there exists one final-good firm in the final-good market and second, where there exist two final-good firms in the final-good market. Considering the free entry into the differentiated intermediate-goods market , the results of this study show that, when another firm enters the final-good market and transforms it into a two-firm oligopoly, cost efficiency improves because of an increase in the number of intermediate-goods firms. Furthermore, there is a possibility that the incumbent firm fs profits increases not only for a two-firm oligopoly, but also for an oligopoly with three or more firms. Thus, sharing technology for free could improve the profits of incumbent firms. |
| Keywords: | Monopolistic competition; Endogenous variety of intermediate goods; T echnology sharing; Intermediate goods; Technology transfer |
| JEL: | D43 L13 L16 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:2105&r= |
| By: | Nicola Bianchi; Michela Giorcelli |
| Abstract: | This paper examines the long-term and spillover effects of management interventions on firm performance. Under the Training Within Industry (TWI) program, the U.S. government provided management training to firms involved in war production between 1940 and 1945. Using a newly collected panel dataset on all 11,575 U.S. firms that applied to the program, we find that the TWI training had positive and long-lasting effects on firm performance and the adoption of beneficial managerial practices. Moreover, it generated complementarities among different types of training and had positive spillover effects on the supply chain of trained firms. |
| JEL: | J24 L2 M2 M5 N34 N64 O15 O32 O33 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28833&r= |
| By: | Yasuo Goto (Faculty of Social Innovation, Seijo University) |
| Abstract: | The real estate industry is a typical industry that suffered the most damage from the bursting of the bubble economy in Japan and seems to have not yet completely recovered from the severe situation overall. In this article we analyse the industry using comprehensive database which incorporate huge number of small and medium-sized enterprises. We confirmed that the real estate industry as a whole is not in a bad situation, but that the smallest tiers are performing poorly. It can be interpreted as not because of the large number of inefficient firms, but because of the high degree of inefficiency, in terms of inefficiency of firms which is evaluated with the criteria for “zombie” firm in this article. The average profit margin of SMEs in the real estate industry is relatively low, however, the proportion of zombie firms is not necessarily high. The problem is not the ratio of the number of zombies but the performance of zombies in the smallest class. In the real estate industry, relatively large-scale class generally has become out of the post-bubble situation. Improving the profitability of the smallest tier seems to be an unavoidable challenge for improving the performance of the industry as a whole. |
| Keywords: | firm dynamics, zombie firm, profit margin, bubble economy, small and medium-sized enterprises (SMEs), size-dependent policy |
| JEL: | P43 L25 M13 G32 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1059&r= |
| By: | Matsuyama, Kiminori; Ushchev, Philip |
| Abstract: | In existing models of endogenous innovation cycles, market size alters the amplitude of fluctuations without changing the nature of fluctuations. This is due to the ubiquitous assumption of CES homothetic demand system, implying that monopolistically competitive firms sell their products at an exogenous markup rate in spite of the empirical evidence for the procompetitive effect of entry and market size. We extend a model of endogenous innovation cycles to allow for the procompetitive effect, using a more general homothetic demand system, which contains both CES and translog as special cases. We show that a larger market size and/or a smaller innovation cost, which causes the markup rate to decline through the procompetitive effect, has destabilizing effects on the dynamics of innovation. |
| Keywords: | Dynamic monopolistic competition; Endogenous innovation cycles; H.S.A.; market size; Periodic cycle; Piecewise-linear dynamical system; Procompetitive Effect; Robust chaotic attractor; the Judd model |
| JEL: | D43 E32 L13 O31 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15010&r= |
| By: | de Haas, Ralph; Lu, Liping; Ongena, Steven |
| Abstract: | We interview 379 European bank CEOs to identify their banks' main competitors. We then provide evidence on the drivers of bilateral bank competition, construct a novel competition measure at the locality level, and assess how well it explains variation in firms' credit constraints. We find that banks identify another bank as a main competitor in small-business lending when their branch networks overlap, when both are foreign owned or relationship oriented, or when the potential competitor has fewer hierarchical layers. Intense bilateral bank competition increases local credit constraints, especially for small firms, as competition may impede the formation of lending relationships. |
| Keywords: | Bilateral bank competition; credit constraints; multimarket contact |
| JEL: | D22 D40 F36 G21 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15015&r= |
| By: | Do, Quoc-Anh; Lee, Yen-Teik; Nguyen, Bang Dang; Nguyen, Kieu-Trang |
| Abstract: | Does more political power always lead to more favoritism? The usual affirmative answer overlooks scrutiny's role in shaping the pattern of favoritism over the ladder of power. When attaining higher-powered positions under even stricter scrutiny, politicians may reduce quid-pro-quo favors towards connected firms to preserve their career prospect. Around close Congress elections, we find RDD-based evidence of this adverse effect that a politician's win reduces his former classmates' firms stock value by 2.8%. As predicted, this effect varies by cross-state scrutiny, politicians' power, firms' size and governance, and connection strength. It diminishes as a politician's career concern fades over time. |
| Keywords: | close election; congressmen; favoritism; political connection; Power; RDD; scrutiny |
| JEL: | D72 D73 D85 G14 G32 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15141&r= |