nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2016‒09‒04
fifteen papers chosen by
João José de Matos Ferreira
Universidade da Beira Interior

  1. Network externalities and process R&D: A Cournot-Bertrand comparison By Mili Naskar; Rupayan Pal
  2. Does Firm Heterogeneity Matter for Aggregate Dynamics? Evidence from the Allocation of Capital and Labor By Thomas Winberry; Pablo Ottonello
  3. The lack of boundaries resources hinders the growth of industrial internet By Castren, Klaus; Kortelainen, Aleksi; Seppälä, Timo
  4. Bring Back Our Light: Power Outages and Industrial Performance in Sub-Saharan Africa By Justice Tei Mensah
  5. Science and technology parks and firm growth By Arauzo Carod, Josep Maria; Segarra Blasco, Agustí, 1958-; Teruel, Mercedes
  6. Picking the winner: Measuring urban sustainability in India By B. Sudhakara Reddy; Arpit Tiwari
  7. The gradual evolution of buyer-seller networks and their role in aggregate fluctuations By Ryohei Hisano; Tsutomu Watanabe; Takayuki Mizuno; Takaaki Ohnishi; Didier Sornette
  8. Demand learning and firm dynamics:evidence from exporters By Vincent Vicard; Vincent Rebeyrol; Nicolas Berman
  9. Explaining economic growth in developed economies after 1980 By Carlos Ballestero; Carlos E. Posada
  10. External determinants of small business survival – The overwhelming impact of GDP and other environmental factors and a new proposed framework By GUIMARÃES BARBOSA, EVALDO
  11. The Impact of Sin Culture: Evidence from Earning Management and Alcohol Consumption in China By Li, Zhe; Massa, Massimo; Xu, Niahang; Zhang, Hong
  12. An Optimal Rule for Patent Damages Under Sequential Innovation By Chen, Yongmin; Sappington, david
  13. Firm Entry and Exit and Aggregate Growth By Timothy Kehoe; Sewon Hur; Kim Ruhl; Jose Asturias
  14. Smithian Growth through Creative Organization By Patrick Legros; Andrew F. Newman; Eugenio Proto
  15. Firm Innovation and Financial Analysis: How Do They Interact? By Joel Peress; jim goldman

  1. By: Mili Naskar (Indira Gandhi Institute of Development Research); Rupayan Pal (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines the implication of the nature of competition in a market with network externalities on strategic investment in process R&D by firms. It shows that network externalities have a positive effect on process R&D, regardless of the nature of product market competition; but, that effect is larger under Bertrand competition than under Cournot competition. If network externalities are sufficiently strong, regardless of the degree of product differentiation, Bertrand firms have a stronger incentive for process R&D than Cournot firms. Otherwise, if network externalities are not sufficiently strong, the higher the degree of product differentiation, the greater is the possibility of Bertrand R&D to be higher than Cournot R&D.
    Keywords: Process R&D, Network Externalities, Cournot, Bertrand, Product Differentiation
    JEL: L13 D43 O31
    Date: 2016–07
  2. By: Thomas Winberry (University of Chicago); Pablo Ottonello (University of Michigan)
    Abstract: It is well-documented that there is tremendous heterogeneity in firms’ productivity, investment, and hiring, implying the allocation of resources is important in determining aggregate dynamics. In this project, we measure the dynamics of the allocation of capital and labor across firms and use this measurement to understand how heterogeneity matters for aggregate business cycles. We measure the allocation of resources using the distribution of marginal products across firms. Preliminary empirical results using Compustat data suggest that the dispersion of the marginal product of capital is strongly countercyclical, while the dispersion in the marginal product of labor is acyclical, implying that models with frictions to capital adjustment are most promising for explaining the data. To discriminate between particular models, we plan to quantitatively map their predictions for the distribution in terms of informative micro-level wedges, in the spirit of Hsieh and Klenow (2009).
    Date: 2016
  3. By: Castren, Klaus; Kortelainen, Aleksi; Seppälä, Timo
    Abstract: Abstract We analyze 51 medium-sized manufacturing industry companies identified by Ali-Yrkkö and Rouvinen in their earlier research in 2015. Currently, out of these 51 companies with a staff of 250–499 employees in 2013, none are using digital platforms for business network management. It is typical for digital platforms that different actors can create, provide and maintain complementary products and services to the various distribution channels and markets, within the framework of mutually agreed business and contract rules, technical bourdary resources and a predefined user experience. Only seven companies (14%) offer digitally featured products and services. Digital product and service features are charted by using 26 different Finnish and English search terms, such as ’internet of things’, ’sensor’, ’cloud service’ and ’preventive maintenance’. Finally we consider four strategic questions for open boundary resources.
    Keywords: Digital platforms, boundary resources, digital offering, Kemppi
    JEL: L6 L8 L86 L89
    Date: 2016–08–26
  4. By: Justice Tei Mensah (Swedish University of Agricultural Sciences)
    Abstract: Power cuts have become a characteristic feature of many Sub-Saharan African economies. This paper attempts to investigate the micro and macro impacts of power outages by estimating the effects on firm revenue and productivity, and output growth of the manufacturing and industrial sectors. Further, I evaluate the impact of self-generation in ameliorating the effects of electricity shortages on firm performance using a quasi-experimental approach. Results from the analysis reveal significant negative effects of electricity shortages on firm revenue and productivity, and output growth of manufacturing and industrial sectors. Finally, contrary to the notion that self-generation may be helpful to firms during outage periods, evidence from this paper suggest the reliance on self-generation is associated with productivity losses albeit short run revenue gains.
    Keywords: Power Outages, Sub-Saharan Africa, Electricity, Productivity, Firms
    JEL: D04 D24 L11 L94 O12
    Date: 2016–06
  5. By: Arauzo Carod, Josep Maria; Segarra Blasco, Agustí, 1958-; Teruel, Mercedes
    Abstract: This paper aims to contribute to understanding the role played by Science and Technology Parks in fostering firm growth. Public policies have given such parks a central role but empirical research has not come to a consensus on whether there is a link between in†park location and firm growth. Applying a matching procedure to our mercantile register data we obtain a database of 286 in†park firms, together with 268 out†park firms. Our results show that in†park firms show greater growth rates and volatility than their counterparts, but we do not find evidence of their capacity to obtain larger long†term debts. Keywords: science and technology parks, firm location, firm growth. JEL codes: L25, O30, R11, R58
    Keywords: Parcs tecnològics, Localització industrial, Economia regional, Empreses -- Creixement, Innovacions tecnològiques -- Aspectes econòmics, 332 - Economia regional i territorial. Economia del sòl i de la vivenda,
    Date: 2016
  6. By: B. Sudhakara Reddy (Indira Gandhi Institute of Development Research); Arpit Tiwari (Tata Institute of Social Sciences)
    Abstract: This study provides a snapshot of the sustainability of selected Indian cities by employing 57 indicators in four dimensions to develop an overall city sustainability index. In recent years, its complexity has made 'urban sustainability' a prominent concept. Urban areas propel growth and at the same time pose a lot of ecological, social and infrastructural problems and risks. High population density and continuous in-migration among developing countries created the highest risk in natural and man-made disasters. These issues and the inability of policy-makers in providing basic services make the cities unsustainable. The objective of the paper is to develop a city performance index (CPI) to measure and evaluate the urban regions in terms of sustainable performance. The paper uses benchmark approach to measure the cumulative performance of the 25 largest Indian cities based on economic, environmental social and institutional dimensions. The CPI, consisting of four dimensions disaggregates into 12 categories and ultimately into 53 indicators. The data are obtained from public and non-governmental organizations, as also from city officials and experts. By ranking a sample of diverse cities on a set of specific dimensions the study can serve as a baseline of current conditions and a marker for referencing future results. The benchmarks and indices presented in the study provide a unique resource for the government and the city authorities to learn about the positive and negative attributes of their a city and prepare plans for sustainable urban development.
    Keywords: City, Benchmark, Index, Performance, Sustainability, Urban
    JEL: P28 Q41 Q42 Q48
    Date: 2016–07
  7. By: Ryohei Hisano (The University of Tokyo); Tsutomu Watanabe (The University of Tokyo); Takayuki Mizuno (National Institute of Informatics); Takaaki Ohnishi (The University of Tokyo); Didier Sornette (Swiss Federal Institute of Technology)
    Abstract: Buyer-seller relationships among firms can be regarded as a longi- tudinal network in which the connectivity pattern evolves as each firm receives productivity shocks. Based on a data set describing the evolu- tion of buyer-seller links among 55,608 firms over a decade and structural equation modeling, we find some evidence that interfirm networks evolve reflecting a firm's local decisions to mitigate adverse effects from neigh- bor firms through interfirm linkage, while enjoying positive effects from them. As a result, link renewal tends to have a positive impact on the growth rates of firms. We also investigate the role of networks in aggregate fluctuations.
    Date: 2016–08
  8. By: Vincent Vicard (Banque de France); Vincent Rebeyrol (Toulouse School of Economics); Nicolas Berman (Graduate Institute of International and)
    Abstract: This paper provides evidence that learning about demand is an important driver of firms’ dynamics. We present a model of Bayesian learning in which firms are uncertain about their idiosyncratic demand in each of the markets they serve, and update their beliefs as noisy information arrives. Firms are predicted to update more their beliefs the younger they are. Guided by the model, we use exporter-level data to identify separately the idiosyncratic demand shocks and the firms’ beliefs about future demand. The learning process appears stronger for younger firms and weaker in more uncertain environments. Further, accumulated knowledge decays during exit periods. The updating process generates a decline in growth rate with age conditional on size. Firm exit behavior is also consistent with the theory: the exit probability decreases with the firms’ beliefs and the demand shocks the firm faces, and demand shocks trigger more exit in younger cohorts.
    Date: 2016
  9. By: Carlos Ballestero; Carlos E. Posada
    Abstract: We use the Aguion and Howitt (2009) theoretical model of endogenous economic growth to explain the declining economic growth in developed economies in the period 1981-2009. Aguion and Howitt theoretical framework combines Solownian and Schumpeterian elements in a single scenario, so that labor-augmenting technological progress and capital accumulation per efficiency unit of labor are both caused not only by exogenous changes in the investment rate but also by shocks to the degree of efficiency in the Research and Development (R&D) expenditure process. Empirical results revealed that per worker output growth rates and capital stock per efficiency unit of labor growth rates both have a common panel unit root. Since the panel cointegration tests and estimates revealed a statistical significant negative long-run relationship between per worker output growth rate and capital stock per efficiency unit of labor, the interpretation of the econometric results analized from the Aguion and Howitt ?s theoretical perspective is that labor-augmenting technological progress is endogenously falling over time mainly because of an exogenous deterioration of the environment conditions for the transformation of the investment rate and R&D expenditures in technological progress.
    Keywords: Economic growth, Solownian and Schumpeterian models of growth, investment rate, R&D expenditures, Capital stock per efficient unit of labor
    JEL: O11 O31 O33 O41 O47 O57
    Date: 2016–08–01
    Abstract: This article claims that the basic relationships between, on the one side, the small firms’ hazard of exit, and, on the other side, the GDP growth rate and the industry growth rate are U-shaped. This means that there are more births and deaths for this segment of manufacturing enterprises during both cyclical downturns and booms in the economy. Higher competition in the economy in the first case comes from necessity entrepreneurs and in the second case from opportunity ones. The article also claims that the quadratic specification would rarely be the most adequate, since other combinations of different pairs of exponents would certainly better capture nuances of the relationships being regressed, in view of the fact that the actual U-shaped relationship is rarely symmetric. This is exactly why the artificial exclusive monotonic fitting normally produces parameter estimates that signalize the existence of a decreasing relationship. So, what may wonder many people, the invariably detected inverse relationship is not caused by the second half segment (where the economic upturns occur) of the continuous of the GDP growth rate, but rather by the first (where the economic downturns occur), whose impact on the hazard of exit is normally stronger. Also, even a direct relationship may occur because of this asymmetry and findings of lack of statistical significance result from a misguided attempt to fit a linear specification to a perfect, or almost perfect, symmetrical actual U-shaped relationship. The article conclusively claims that these realizations, and the fact that authors overfit by specifying contemporaneously the GDP growth rate, the industry growth rate and the industry entry rate, explain findings in the extant literature that are awkward, unexpected and embarrassing and interpretations that are many times completely inapplicable.
    Keywords: Small business; Survival determinants; GDP growth; Cox regression
    JEL: M21
    Date: 2016–08–15
  11. By: Li, Zhe; Massa, Massimo; Xu, Niahang; Zhang, Hong
    Abstract: We study whether culture plays an important role in affecting firm incentives when formal institutions fall short. We link earnings management to alcohol-related sin culture in China, and we find that firms in regions in which alcohol plays a more prominent role show more earnings management. Tests using the regional gender ratio and snow/temperature as instruments suggest a causal interpretation. Moreover, a high level of alcohol consumption in CEOs' home region significantly enhances earnings management, suggesting that corporate leaders can transmit and propagate sin culture in society. We also find that firms more exposed to alcohol rely more on local business partners for their operations. Furthermore, culture can generate a negative externality by further reducing the likelihood of fraud detection; however, significant improvements in formal institutions (e.g., the 2012 anticorruption regulation) can suppress this impact. Our results shed new light on the impact of culture on the real economy.
    Keywords: Alcohol; Culture; Earnings management; Geographic shocks
    JEL: G30 M14 P48
    Date: 2016–08
  12. By: Chen, Yongmin; Sappington, david
    Abstract: We analyze the optimal design of damages for patent infringement in settings where the patent of an initial innovator may be infringed by a follow-on innovator. We consider damage rules that are linear combinations of the popular "lost profit" (LP) and "unjust enrichment" (UE) rules, coupled with a lump-sum transfer between the innovators. We identify conditions under which a linear rule can induce the socially optimal levels of sequential innovation and the optimal allocation of industry output. We also show that, despite its simplicity, the optimal linear rule achieves the highest welfare among all rules that ensure a balanced budget for the industry, and often secures substantially more welfare than either the LP rule or the UE rule.
    Keywords: Patents, sequential innovation, infringement damages, linear rules for patent damages.
    JEL: D4 K2 O3
    Date: 2016–08–30
  13. By: Timothy Kehoe (University of Minnesota); Sewon Hur (University of Pittsburgh); Kim Ruhl (New York University Stern School of Busi); Jose Asturias (Georgetown University)
    Abstract: Using plant-level data from Chile and Korea, we find that, during episodes of rapid growth, most of the aggregate productivity growth is due to the entry and exit of firms while, during episodes of slower growth, it is mostly due to growth within and across existing firms. Studies for other countries suggest that this is an empirical regularity. We develop a dynamic general equilibrium model based on Hopenhayn (1992) which incorporates the theory of economic growth proposed by Parente and Prescott (1994) and Kehoe and Prescott (2002). In this model, new firms enter every period with productivities drawn from a distribution whose mean grows over time. After entering, a firm’s productivity grows, but not as rapidly as new firms’ productivity distribution. In a version of the model calibrated to U.S. plant-level data, we simulate two sets of reforms: a decrease in new firms’ costs of entry and a reduction in the barriers to technology adoption for new firms. The model reproduces the regularity that we observe in the data, and confirm that entry and exit of firms is crucial for reforms to generate rapid growth.
    Date: 2016
  14. By: Patrick Legros; Andrew F. Newman; Eugenio Proto
    Abstract: We model technological progress as an external effect of organizational design, fo- cusing on how factories, based on labor division, could spawn the industrial revolution. Dividing labor, as Adam Smith argued, facilitates invention by observers of production processes. However, entrepreneurs cannot internalize this benefit and choose labor di- vision to facilitate monitoring. Equilibrium with few entrepreneurs features low wage shares, high specialization, but a limited market for innovations. Conversely, with many entrepreneurs there is a large market for innovation, but little specialization be- cause of high wage shares. Technological progress therefore occurs with a moderate scarcity of entrepreneurs. Institutional improvements affect growth ambiguously.
    Keywords: factory system, industrial revolution, technological change, contracts
  15. By: Joel Peress (INSEAD); jim goldman (insead)
    Abstract: Entrepreneurs innovate more when financiers are better informed about their projects because they expect to receive more funding should their projects be successful. Conversely, financiers collect more information about projects when entrepreneurs innovate more because the opportunity cost of misinvesting, i.e. of missing out on successful projects, is higher. Thus, technological knowledge and knowledge about technologies are mutually reinforcing. We report evidence consistent with this interaction using two quasi-natural experiments that changed, respectively, the innovation incentives and the information environment for U.S. listed firms. A calibration suggests that its contribution to income growth represents more than one third of the total contributions of information collection and innovation. We also estimate that a policy designed to stimulate innovation has an indirect effect through investors’ learning incentives that accounts for a third of the total effect of the policy on firms’ innovation incentives.
    Date: 2016

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