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on Business Economics |
| By: | Lisa Planer-Friedrich; Marco Sahm |
| Abstract: | We examine the strategic use of Corporate Social Responsibility (CSR) in imperfectly competitive markets. The level of CSR determines the weight a firm puts on consumer surplus in its objective function before it decides upon supply. First, we consider symmetric Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Third, we consider heterogeneous firms and show that asymmetric costs imply asymmetric CSR levels. |
| Keywords: | corporate social responsibility, market concentration, Cournot competition, entry deterrence, strategic delegation, evolutionary stability |
| JEL: | D42 D43 L12 L13 L21 L22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6506&r=bec |
| By: | Wolfgang Keller; William W. Olney |
| Abstract: | This paper identifies globalization as a factor behind the rapid increase in executive compensation and inequality over the last few decades. Employing comprehensive data on top executives at major U.S. companies, we show that compensation is higher at more global firms. We find that pay responds not only to firm size and technology but also to exports conditional on other firm characteristics. Export shocks that are not related to the executive’s talent and actions also increase executive compensation, indicating that globalization is influencing compensation through pay-for-non-performance. Furthermore, this effect is asymmetric, with executive compensation increasing due to positive export shocks but not decreasing due to negative shocks. Finally, export shocks primarily affect discretionary forms of compensation of more powerful executives at firms with poor corporate governance, as one would expect if globalization has enhanced rent-capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that both higher returns to top talent and rent-capture are important parts of this story. |
| Keywords: | inequality, executive compensation, globalization, exports |
| JEL: | F16 F14 M12 J31 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6701&r=bec |
| By: | Söhnke M. Bartram; Gregory Brown; René M. Stulz |
| Abstract: | From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the strength of the relation, it is strong for the most liquid stocks. The relation has roots in fundamentals. Higher market risk predicts greater idiosyncratic earnings volatility as well as dispersion and errors in analysts’ earnings forecasts. Firm characteristics related to the ability of firms to adjust to higher uncertainty help explain the strength of the relation. We find evidence that the relation is weaker for firms with more growth options, which is con-sistent with the view that such options provide a hedge against macroeconomic uncertainty. |
| Keywords: | uncertainty, idiosyncratic risk, market risk, growth options, liquidity, limits to arbitrage |
| JEL: | G10 G11 G12 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6560&r=bec |
| By: | Giammario Impullitti; Omar Licandro; Pontus Rendahl |
| Abstract: | We study the gains from trade in an economy with oligopolistic competition, firm heterogeneity, and innovation. Oligopolistic competition together with free entry make markups responsive to firm productivity and trade costs. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Nevertheless, the downward pressure dominates and the average markup declines, deterring firms from entering the market and leading to higher market concentration. Neither the increased concentration nor the incomplete pass-through of trade costs to export markups are strong enough to compensate for the increase in competition on domestic sales. Thus the overall effect of trade on markups is pro-competitive and a key source of the associated welfare gains. In addition to markups, selection and innovation provide additional channels through which the trade-induced effect on competition impacts welfare. In a quantitative exercise, we decompose the total gains from trade into these three contributing channels; we find that innovation plays a small but non-negligible role, while the main component is equally split between the pro-competitive and the selection channel. |
| Keywords: | Gains from Trade, Heterogeneous Firms, Oligopoly, Innovation, Endogenous Markups, Endogenous Market Structure. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:not:notgep:17/14&r=bec |
| By: | Laura Alfaro; Paul Antràs; Davin Chor; Paola Conconi |
| Abstract: | In recent decades, advances in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. We describe a property-rights model of firm boundary choices along the value chain that generalizes Antràs and Chor (2013). To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model's predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm's propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage, as well as by the firm's productivity. Our results suggest that contractual frictions play an important role in shaping the integration choices of firms around the world. |
| Keywords: | global value chains, sequential production, incomplete contracts |
| JEL: | F14 F23 D23 L20 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1507&r=bec |
| By: | Lars Hornuf; Matthias Schmitt |
| Abstract: | Today, start-ups often obtain financing via the Internet through many small contributions of non-sophisticated investors. Yet little is known about whether these start-ups can ultimately build enduring businesses. In this paper, we hand-collected data from 38 different equity crowdfunding (ECF) portals and 656 firms that ran at least one successful ECF campaign in Germany or the United Kingdom. The evidence shows that German firms that receive ECF stand a higher chance of obtaining follow-up funding through business angels or venture capitalists and have a relatively lower likelihood to survive. We find firm age, the average age of the management team, and excessive funding during the ECF campaign all have a negative effect on firms’ likelihood to obtain post-campaign financing. By contrast, the number of senior managers, registered trademarks, subsequent successful ECF campaigns, crowd exits, and the amount of the funding target all have a positive impact. Subsequent successful ECF campaigns, crowd exits, and the number of venture capital investors are significant predictors reducing firm failure. Finally, we find that some of these factors have a differential impact for Germany and the United Kingdom. |
| Keywords: | equity crowdfunding, follow-up funding, firm survival |
| JEL: | G24 M13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6642&r=bec |
| By: | Mitra, Manipushpak; Pal, Rupayan; Paul, Arindam; Sharada, P.M. |
| Abstract: | We consider a differentiated product duopoly where a regulated firm competes with a private firm. The instrument of regulation is the level of privatization. First, the regulator determines the level of privatization to maximize social welfare. Then both firms endogenously choose the mode of competition (that is, whether to compete in price or quantity). Finally, the two firms compete in the market. Under a very general demand specification, we show that when the products are imperfect substitutes (complements), there is co-existence of private and public (strictly partially privatized) firms. Moreover, in the second stage, the firms compete in prices. |
| Keywords: | Partially private firm, price (Bertrand) competition, quantity (Cournot) competition |
| JEL: | D4 L1 L2 |
| Date: | 2017–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81802&r=bec |
| By: | Zuzana Brixiova; Balazs Egert |
| Abstract: | This paper develops a model of costly firm creation in an economy with weak institutions, costly business environment as well as skill gaps where one of the equilibrium outcomes is a low-productivity trap. The paper tests the implications of the model using a cross-sectional dataset including about 100 countries. Both theoretical and empirical results suggest that to move the economy into a productive equilibrium, complementarity matters: reforms to improve the business environment tend to be more effective in creating productive firms when accompanied by narrowing skill gaps. Similarly, more conducive business regulations amplify the positive impact on firm creation of better education and reduced skill mismatches. To escape a low-productivity trap, policymakers should thus create a pro-business framework and a wellfunctioning education system. |
| Keywords: | model of start-ups and strategic complements, institutions, education, low-income countries, threshold regression |
| JEL: | L26 J24 J48 O17 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6451&r=bec |
| By: | Ozdenoren, Emre; Rubanov, Oleg |
| Abstract: | We model a firm as a team production process subject to moral hazard and derive the optimal profit sharing scheme between productive workers and outside investors together with incentive contracts based on noisy performance signals. More productive agents with noisier performance signals are more likely to receive shares which can explain why managers are motivated by shares, and law or consulting firms form partnerships. A firm that grows by opening branches is held almost entirely by outside investors when its output noise grows faster than the number of branches. Otherwise, insiders hold substantial amount of a large firm's shares. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12355&r=bec |
| By: | Götz, Georg; Ederington, Josh |
| Abstract: | We develop a model in which ex ante identical firms make endogenous entry and technology adoption decisions. We show that this model is capable of matching the stylized facts in which entry is dispersed over time and that, in many industries, it is the newest firms which are the most likely to exhibit high productivity growth and adopt new innovations (i.e., leapfrogging). We then derive the characteristics of those industries where such leapfrogging is likely to occur. |
| JEL: | L11 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168126&r=bec |
| By: | Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Peter H. Egger (ETH Zurice, CEPR, CESifo, GEP); Michaela Kesina (ETH Zurich) |
| Abstract: | This paper studies the determinants of firm-level revenues, as a measure of the performance of firms in China's domestic and export markets. The analysis of the determinants of the aforementioned outcomes calls for a mixed linear-nonlinear econometric approach. The paper proposes specifying a system of equations, which is inspired by Basmann's work and recent theoretical work in international economics and conducts comparative static analyses regarding the role of exogenous shocks to the system to flesh out the relative importance of transmissions across outcomes. |
| Keywords: | Spatial Econometrics, Spillovers, Panel-Data Econometrics, Nonlinear Systems, Firm- Level Sales, Chinese Firms |
| JEL: | C23 C31 D24 L65 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:max:cprwps:209&r=bec |
| By: | Gerda Dewit (Department of Economics, Finance and Accounting, Maynooth University.); Dermot Leahy (Department of Economics, Finance and Accounting, Maynooth University.); Chris Jones (Aston University, Birmingham, UK); Yama Temouri (.Aston University, Birmingham, UK) |
| Abstract: | This paper provides theoretical and empirical evidence of the link between the use of tax haven subsidiaries by multinational enterprises (MNEs) and firm performance, as measured by total factor productivity. We find that the use of tax havens has no impact on economic dynamism for a sample of MNEs from across the OECD. Our results have significant policy implications in terms of the role of tax havens in the world economy. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n284-17.pdf&r=bec |
| By: | Qu, Zhan; Raff, Horst |
| Abstract: | This paper constructs a model of a supply chain to examine how demand volatility is passed upstream through the chain. In particular, we seek to determine how likely it is that the chain experiences a bullwhip effect, where the variance of the upstream firm's production exceeds the variance of the downstream firm's sales. We show that the bullwhip effect is more likely to occur and is greater in size in supply chains in which inventory control is centralized rather than decentralized, that is, exercised by the downstream firm. |
| Keywords: | bullwhip effect,production smoothing,inventory,supply chain,volatility,stockout avoidance |
| JEL: | L22 L14 D92 M11 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tudcep:1717&r=bec |
| By: | Haichao Fan (Institute of World Economy, School of Economics, Fudan University, Shanghai, China); Yao Amber Li (Division of Economics, The Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology; Research Affiliate of the China Research and Policy Group at University of Western Ontario); Stephen R. Yeaple (Department of Economics, Pennsylvania State University; Research Associate at National Bureau of Economic Research; Research Affiliate at Ifo Institute) |
| Abstract: | This paper presents an analysis of the effect of China’s entry into the WTO on the quality choices of Chinese exporters in terms of their outputs and their inputs. Using highly disaggregated firm-level data, we show that the quality upgrading made possible by China’s tariff reductions was concentrated in the least productive Chinese exporters. These firms, which had been laggards in terms of quality prior to the tariff reduction, were the most aggressive in increasing the quality of their exports and their inputs and in redirecting their exports towards high income markets where demand for high quality goods is strong. Our empirical results are consistent with a simple model featuring scale effect and non-Hicks’ neutral productivity that disproportionately affects the efficiency with which firms use intermediate inputs. This latter feature does not appear in workhorse models of firm heterogeneity and endogenous quality choice which provide a distorted view of the impact of trade liberalization on quality upgrading. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:hku:wpaper:201746&r=bec |