nep-bec New Economics Papers
on Business Economics
Issue of 2021‒08‒30
ten papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Immigration and Local Business Dynamics: Evidence from U.S. Firms By Parag Mahajan
  2. Scaling up in Entrepreneurial Ecosystems: A comparative study of Entrepreneurial Ecosystems in Life Science By Alvedalen, Janna; Carlsson, Bo
  3. Did US Business Dynamism Recover in the 2010s? By Asier Aguilera-Bravo; Miguel Casares; Hashmat Khan
  4. The Determinants of Electricity Constraints by Firms in Developing Countries By Elizabeth Asiedu; Theophile T. Azomahou; Neepa B. Gaekwa; Mahamady Ouedraogo
  5. The perpetual trouble with network products: Why IT firms choose partial compatibility By Stadler, Manfred; Tobler Trexler, Céline; Unsorg, Maximiliane
  6. Size and Age as Determinants of Employment Growth among Manufacturing Firms in Pakistan By Farrukh Iqbal; Aadil Nakhoda
  7. Acquisition experience and director remuneration By Addis Gedefaw Birhanu; Philipp Geiler; Luc Renneboog; Yang Zhao
  8. Resilience after a large firm's closure: the role of place leadership, local resources, and social capital in the transformation of an Entrepreneurial Ecosystem By Alvedalen, Janna
  9. The productivity puzzle in business services By Alexander S. Kritikos; Alexander Schiersch; Caroline Stiel
  10. Regulatory Costs of Being Public: Evidence from Bunching Estimation By Michael Ewens; Kairong Xiao; Ting Xu

  1. By: Parag Mahajan
    Abstract: This paper finds that establishment entry and exit—particularly the prevention of establishment exit—drive immigrant absorption and immigrant-induced productivity increases in U.S. local industries. Using a comprehensive collection of confidential survey and administrative data from the Census Bureau, it shows that inflows of immigrantworkers lead to more establishment entry and less establishment exit in local industries. These relationships are responsible for nearly all of long-run immigrant-induced job creation, with 78 percent accounted for by exit prevention alone, leaving a minimal role for continuing establishment expansion. Furthermore, exit prevention is not uniform: immigrant inflows increase the probability of exit by establishments from low productivity firms and decrease the probability of exit by establishments from high productivity firms. As a result, the increase in establishment count is concentrated at the top of the productivity distribution. A general equilibrium model proposes a mechanism that ties immigrantworkers to high productivity firms and shows how accounting for changes to the firm productivity distribution can yield substantially larger estimates of immigrant-generated economic surplus than canonical models of labor demand.
    Keywords: Immigration, Business Dynamics, Job Creation, Productivity, Firm Heterogeneity
    JEL: J23 J61 L11 F22
    Date: 2021–08
  2. By: Alvedalen, Janna (CIRCLE, Lund University); Carlsson, Bo (Case Western Reserve University)
    Abstract: Scaling-up is still underexplored in the Entrepreneurial Ecosystem literature. This paper presents a comparative analysis of five Entrepreneurial Ecosystems in Life Sciences in Sweden and the US, based on own data collection. It examines the factors that support or impede the scale-up process of firms in different geographical contexts. The paper outlines firm-specific and firm-external factors important to high-growth firms in Life Science and shows these factors differentiate across distinct geographical contexts. The study sheds light on key enablers and barriers to scaling-up in Entrepreneurial Ecosystems and the roles of different actors including growth ambition, technological expertise, management competence, business model alteration, funding, global firms, human capital, support organizations, local growth culture, hospitals and universities.
    Keywords: Entrepreneurial Ecosystem; scale-up; high-growth firms; Life Sciences; Sweden; U.S.
    JEL: L26 M21 O33
    Date: 2021–08–20
  3. By: Asier Aguilera-Bravo (Universidad de Navarra); Miguel Casares (Universidad Pública de Navarra & INARBE); Hashmat Khan (Carleton University)
    Abstract: We provide evidence that both firm and establishment entry rates in the US have been increasing over the past decade, seemingly ending the secular decline observed over previous decades. However, the job-size of new businesses relative to incumbents has decreased substantially. Controlling for these opposite trends reveals that the size-adjusted entry rate continues to decline.
    Date: 2021
  4. By: Elizabeth Asiedu (Department of Economics, University of Kansas); Theophile T. Azomahou (African Economic Research Consortium); Neepa B. Gaekwa (State University of New York at Fredonia); Mahamady Ouedraogo (Universite Clermont-Auvergne, CNRS, CERDI)
    Abstract: We employ survey data for 108 developing countries over the period 2006-2017 and estimate an ordered probit model to determine the firm and country characteristics that affect the probability that a firm is energy poor - i.e., the firm will report that electricity is an obstacle to the firm's operations. We find that firms that experienced power outages and firms in the manufacturing industry are more likely to be energy poor. In contrast, majority-owned government firms and older firms are less likely to be energy poor. The gender of the firm owner and the size of the firm are not correlated with firm energy poverty. Among firms that experienced power outages, firm energy poverty increases with the frequency as well as the duration of outages. We also find that firms that operate in countries with weak institutions and in countries where residents have limited access to electricity are more likely to be energy poor.
    Keywords: Constraints, Electricity, Energy Poverty, Firms, Institution
    JEL: D22 O12 L20
    Date: 2021–06
  5. By: Stadler, Manfred; Tobler Trexler, Céline; Unsorg, Maximiliane
    Abstract: Compatibility of network products is an important issue in markets for communication technology as well as hard- and software products. Empirical findings suggest that firms competing in these markets typically choose intermediate degrees of product compatibility. We present a strategic two-stage game of two firms deciding strategically or commonly on the degree of product compatibility in the first stage and on prices in the second stage. Indeed, partial compatibility constitutes a subgame perfect Nash equilibrium when coordination costs of standardization are high and the installed bases are low.
    Keywords: Compatibility,Network Products,Network Effects
    JEL: C72 L13 L15
    Date: 2021
  6. By: Farrukh Iqbal (Center for Social Policy Research.); Aadil Nakhoda (Institute of Business Administration, Karachi.)
    Abstract: Size-based industrial policy is usually justified in developing countries on the basis of positive externalities arising from an assumed inverse relationship between size and firm dynamism, whereby smaller firms generate jobs faster than larger firms and thus absorb more labour. Theoretically, such a profile could arise from the stylized lifecycle of the typical firm which starts small and grows on the basis of economies of scale until a point where such economies are fully exploited. A similar profile could also be generated by the rising age of the firm. In this case, the firm grows faster when young, driven by the effort, ideas and risk-taking of young owners and managers, but grows slower as they mature and become more risk averse and more cognizant of their firm’s capabilities. In recent decades, empirical support has been found for both size and age effects on employment growth in some developed and developing countries. For Pakistan, the joint effects of size and age on employment growth have not been studied at the national level, even though size-based industrial policies have long been applied and age-based policies are growing in popularity. We address this gap in this paper and report three key findings: (i) size is inversely related to employment growth among manufacturing firms in Pakistan; (ii) the effects appear to be concentrated among firms having 50 workers or less; and (iii) age is not a statistically significant determinant of employment growth when all manufacturing sub-sectors are considered in the aggregate.
    Keywords: Firm Size; Firm Age; Employment Growth; Manufacturing; Pakistan; Industrial Policy
    JEL: L25 O14
    Date: 2020
  7. By: Addis Gedefaw Birhanu (emlyon business school); Philipp Geiler; Luc Renneboog; Yang Zhao
    Abstract: We investigate whether acquisition experience of executive and non-executive directors is priced in their remuneration contracts. Acquisition experience generates a contractual premium, and the relative size of this premium is higher for non-executive directors than for executives. Only a director's track record related to past successful acquisitions is priced. Acquisition experience of a director is not remunerated if this type of experience is already abundantly present in the firm through the firm's past acquisition record (substitution effect). We verify the results by examining potential endogeneity concerns, by analyzing a broad set of measures of acquisition experience (such as industry-specific, broad or international experience, experience on a target's board), and by ruling out alternative explanations (such as a director's general skills level or reputation, the CEO's power and delegation attitude, and the firm's corporate governance quality).
    Keywords: Directors,M&A,Takeovers,Mergers,remuneration contracting,Compensation,Experience,Human capital,skills
    Date: 2021–05–11
  8. By: Alvedalen, Janna (CIRCLE, Lund University)
    Abstract: Studies have argued for the pivotal role of large firms in Entrepreneurial Ecosystems (EE). The sudden closure of large firms can be expected to have a substantial negative impact on an EE. This paper investigates the resilience of an EE in the aftermath of a large firm exit in the Lund region. A qualitative case study shows how agency and resources turned the local EE into a dynamic center for Life Sciences. Factors that contributed to the resilience of the EE in Lund were entrepreneurial place leadership, local resources, and social capital. The study provides a framework to understand the transformation of an EE after a crisis.
    Keywords: entrepreneurial ecosystem; resilience; place leadership; social capital; entrepreneurship; closure of large firm
    JEL: L26 M21 O33
    Date: 2021–08–20
  9. By: Alexander S. Kritikos (DIW Berlin, University of Potsdam, IZA Bonn, IAB Nuremberg); Alexander Schiersch (DIW Berlin); Caroline Stiel (DIW Berlin)
    Abstract: In Germany, the productivity of professional services, a sector dominated by micro and small firms, declined by 40 percent between 1995 and 2014. This productivity decline also holds true for professional services in other European countries. Using a German firm-level dataset of 700,000 observations between 2003 and 2017, we analyze this largely uncovered phenomenon among professional services, the 4th largest sector in the EU15 business economy, which provide important intermediate services for the rest of the economy. We show that changes in the value chain explain about half of the decline and the increase in part-time employment is a further minor part of the decline. In contrast to expectations, the entry of micro and small firms, despite their lower productivity levels, is not responsible for the decline. We also cannot confirm the conjecture that weakening competition allows unproductive firms to remain in the market.
    Keywords: business services, labor productivity, productivity slowdown
    JEL: L84 O47 D24 L11
    Date: 2021–08
  10. By: Michael Ewens; Kairong Xiao; Ting Xu
    Abstract: The increased burden of disclosure and governance regulations is often cited as a key reason for the significant decline in the number of publicly-listed companies in the U.S. We explore the connection between regulatory costs and the number of listed firms by exploiting a regulatory quirk: many rules trigger when a firm’s public float exceeds a threshold. Consistent with firms seeking to avoid costly regulation, we document significant bunching around multiple regulatory thresholds introduced from 1992 to 2012. We present a revealed preference estimation strategy that uses this behavior to quantify regulatory costs. Our estimates show that various disclosure and internal governance rules lead to a total compliance cost of 4.1% of the market capitalization for a median U.S. public firm. Regulatory costs have a greater impact on private firms’ IPO decisions than on public firms’ going private decisions. However, heightened regulatory costs only explain a small fraction of the decline in the number of public firms.
    JEL: G28 G32 K22
    Date: 2021–08

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