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2006, Review of Economic Studies
https://doi.org/10.1111/J.1467-937X.2006.00377.X…
46 pages
1 file
as well as seminar participants at several universities and conferences for helpful discussions.
Economic Inquiry, 2013
We report an experiment designed to study whether inefficient firms are systematically driven from overcrowded markets. Our data set includes series of 3800 wars of attrition of a type modeled in . We find that exit tends to be efficient and exit times conform surprisingly well to point predictions of the model. Moreover, subjects respond similarly to implementations framed in terms of losses as they do to those framed in terms of gains. JEL Codes: D21, L11, C92 We would like to thank John Dickhaut and Dan Houser, as well as participants of the George Mason University seminar series and 2006 SEA meetings, for comments and suggestions. All errors and omissions are our own. The data are available upon request. † 415 Engineering 2,
This paper studies the effect of organizational turnover on firm survival within the Dutch accounting service industry during the period 1880-1986. We address three issues: (1) estimating the effect of organizational turnover on organizational dissolution; (2) showing the significance of propinquity in isolating that effect; (3) exposing population dynamics through different levels of analysis. The results of our analysis confirm that turnover is an important endogenous force shaping the evolution of localized populations of organizations. The risk of organizational dissolution increases when turnover entails losses of human and social capital (e.g. long-term owners) and disruption of organizational routines. The results also show that such risk is even higher when organizational members join a competitor or found a new venture within the same geographical area.
The RAND Journal of Economics, 2013
for helpful comments on this work. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure than no confidential information is disclosed. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Review of Industrial Organization, 1996
Previous empirical analyses of job mobility focus on worker rather than firm characteristics. This paper exploits a unique data set on enterprise employment. We describe sectoral differences in turnover rates and in the persistence of turnover. We also present evidence of persistent turnover differences at the level of the individual firms--a result that is expected if firms have managers with differing ability to screen workers. When we consider the consequences to the firm of such turnover, we discover that high turnover firms are less likely to survive.
2008
We argue that labour turnover can increase profitability, contrary to conventional wisdom. We analyse an extension of the Salop (1979) model of the impact of turnover that differentiates between incumbent and newly hired workers in the production function. An exogenous increase in the turnover rate can increase profits if firms do not choose wages unilaterally. Evidence from UK establishment-level data supports our theoretical priors and suggests that increased turnover can indeed increase profitability.
2020
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
This paper investigates the quantitative effects of employee turnover on firms' productivity.
2009
This paper examines the impact of firm productivity and local industrial structure on firm entry and exit in Morocco between 1985 and 2001. There is strong evidence of productivity exerting a market-cleansing role. Less productive firms are found to be more likely to exit - and locations with more productive firms attract higher rates of new firm entry. The effect
2003
An infinite-horizon, stochastic model of entry and exit with sunk costs and imperfect competition is constructed. Simple examples provide insights into: (1) the relationship between sunk costs and industry concentration, (2) entry when current profits are negative, and (3) the relationship between entry and the length of the product cycle. A subgame perfect Nash equilibrium for the general dynamic stochastic game is shown to exist as a limit of finite-horizon equilibria. This equilibrium has a relatively simple structure characterized by two numbers per finite history. Under very general conditions, it tends to exhibit excessive entry and insufficient exit relative to a social optimum.
International Journal of the Economics of Business, 2007
Building on the current theory of industrial concentration, we analyze the relation between market size and product differentiation, and show how product differentiation impacts market share turbulence. Our basic results highlight that in markets where vertical product differentiation dominates, firms will have an incentive to escalate investment in advertising and/or R&D as market size increases. Such (firm-specific) investments will make competitive advantage more sustainable as the firm is less imitable. This will not be the case if the market is primarily characterized by homogeneous product or horizontal product differentiation. Our predictions are tested using an original EU dataset for the period 1987-1997. Our results strongly support our predictions -the degree of market share turbulence increases with market size. However, this relation is weakened by competitive investment in advertising and R&D.
Small Business Economics
Recessions are complex events that create highly unpredictable and unstable business environments. When faced with such events, firm survival depends only limitedly on production efficiency. Rather, it depends on the skills and ability to cope with such complexity. In particular, we expect firms adopting a corporate strategy that makes relatively large use of skills and capabilities to deal with environmental complexity to be less likely to exit during a downturn than firms that do not. We test this hypothesis on the whole population of Italian manufacturing corporations using an open panel that covers the period 2001-2013. The results provide strong support for our hypotheses in the full sample and in the subsamples of small firms, thus suggesting that skill development can successfully empower smaller and more vulnerable firms. Managerial and policy implications are discussed.
International Economic Review
We investigate the roles played by unexpected demand shocks, besides productivity, on firms' capital investment and exit decisions. We propose a practical approach to recover unexpected firm-level demand shocks using inventory data. The recognition of demand shocks and inventory also improves the productivity estimation. The empirical results indicate that although productivity and demand shocks are both significant factors determining firm behavior, the former is more dominant for investment decision and the latter is more salient for firm exit. These findings confirm that unexpected demand shocks, besides persistent productivity, are important factors when analyzing capital investment and firm exit decisions.
Strategic Management Journal, 2013
This study demonstrates that new entrants exhibit higher productivity but also higher exit hazard than incumbents in post-liberalization China. We argue this seemingly paradoxical relationship is attributable to institutional barriers, defined as the hindrance in the institutional environment that prevents market selection forces to function. New entrants require higher productivity to compensate for those institutional barriers, which in turn implies a higher exit hazard after controlling for productivity. Our empirical findings support this argument and further show that the differences in productivity and exit hazard between new entrants and incumbents become smaller where and when institutional barriers recede. By integrating economic and institutional perspectives, we highlight the importance of institutional factors in shaping industry evolution.
The RAND Journal of Economics, 2008
We study the dynamics of an industry subject to aggregate demand shocks where the productivity of a firm's technology evolves stochastically over time. Each period, each firm, given the aggregate demand shock, the productivity of its technology, and the distribution of technology productivities in the economy, (i) chooses whether to remain in the industry or to exit to sell its resources to an entrant; and (ii) an active firm chooses how much capital and labor to employ, and hence output to produce. To characterize the intertemporal evolution of the distribution of firms, we discuss in particular how exit decisions, aggregate output, profits and distributions of firm productivities vary, (a) across different demand realization paths; (b) along a demand history path, detailing the effects of continued good or bad market conditions; and (c) for different anticipated future market conditions. Sufficient conditions are provide for worse demand realizations to lead to increased exit of low-productivity firms and then to improved distributions of firms at all future dates and states. Finally, it is shown that a downturn in demand can raise welfare due to the impact on exit decisions.
Information Resources Management Journal, 2018
This article contends that although much research on the business value of IT focuses on firm-level impacts, studies have begun incorporating industry-level variables as explanatory factors of interest to offer better contextualized explanations for the differences in value firms obtained from their IT across different industries. The authors present a multi-level model of IT value where industry-level and firm-level factors jointly determine the value a firm obtains from its IT. By using a nested model to examine industry to firm interactions, they are able to control for problematic violations of statistical assumptions that are likely to bias estimates from conventional methods. Their analysis shows that all of the industry factors we examined had significant interaction effects. Specifically, industry concentration, industry growth, industry capital intensity, industry outsourcing, and presence in service sector significantly impact firm-level IT value. More interestingly, the a...
European Journal of Marketing, 2017
Purpose The purpose of this study is to offer explanations of the wide variation in the impact of market size on new market entry decisions – i.e. its positive impact lessens because of unreliable predictability of market size on post-entry profit and entry motivations other than post-entry profit. Design/methodology/approach On the basis of the two explanations, this paper builds a contingency frame that the impact of market size on new market entry depends on entry-context-specific variables. It validates the contingency frame, empirically analyzing 219 parameter estimates of the impact of market size on market entry obtained from 41 existing empirical studies. Findings The meta-analysis results reveal that the entry-context-specific variables used in this study – niche market entry, high-tech market entry, entry by industry incumbent firms and the year of market entry – notably moderate the impact of market size on new market entry decisions, as the research frame suggests. Resea...
Journal of Financial and Quantitative Analysis, 2021
We conjecture that marketplace lending provokes an increase in the quantity of entrepreneurship, particularly in more regionally disadvantaged areas, albeit at lower average quality. Using a fuzzy regression discontinuity design that exploits exogenous variation in borrowers' access to marketplace loans along U.S. state borders, we estimate a 10% increase in marketplace lending causes a 0.44% increase in business establishments per capita. The effects are more pronounced for less experienced entrepreneurs, for small and less profitable firms, firms more dependent upon external finance, in industries with lower sunk costs of entry, and for low-income regions with inferior access to financial institutions. We are grateful for helpful comments and suggestions provided by an anonymous referee, Paul Malatesta
The Economic Journal, 2014
We develop a framework that integrates natural advantage, agglomeration economies, and firm selection to explain why large cities are both more productive and more unequal than small towns. Our model highlights interesting complementarities among those factors and it matches a number of key stylised facts about cities. A larger city size increases productivity via a selection process, and higher urban productivity provides incentives for rural-urban migration. Tougher selection increases both the returns to skills and earnings inequality in cities. We numerically illustrate a multi-city version of the model and explore the formation of new cities, the growth of existing cities, and changes in income inequality.
Business Strategy and The Environment, 2023
While prior work has investigated the impact of (a) ownership structure and (b) board gender diversity separately on corporate environmental performance, researchers have not studied the potentially important relationship between ownership control and female board diversity in influencing corporate environmental performance jointly. We do so in the context of majority ownership in family-controlled and dualclass firms whose motives and influence are theoretically different from that of the firm's minority shareholders. Drawing on resource dependency, socioemotional wealth theory, and secondary agency theory, we hypothesize that majority family owners and dual-class owners likely choose women directors to help advance their personal preferences for environmental corporate social responsibility. Our empirical tests utilizing 2,755 U.S. firm years over the 2010-2015 show that, as hypothesized, these two majority ownership types interact with board gender diversity to positively influence corporate environmental performance. K E Y W O R D S board gender diversity, dual-class firms, environmental performance, family firms 1 | INTRODUCTION Corporate environmental management is a prominent, rapidly growing trend in modern business, reflecting the reciprocal relationship between the natural environment and a firm's operations (Boutilier, 2011; Walls, Berrone, & Phan, 2012). The shift towards greener practices is stimulated not only by contextual, or external factors, such as government regulations, industry peers, nongovernmental organizations, supply chain partners, customers, and other stakeholders, but also by organizational, or internal drivers, such as resources, capabilities, managerial attitude and motivation. Within the burgeoning corporate environmental management literature, a major research emphasis is on the identification of drivers of corporate environmental performance, as well as moderators of this direct effect. The present research is aligned with this second scholarly stream. Within this stream, several recent studies have focused on internal corporate governance mechanisms as drivers of corporate
2005
This Paper considers empirical work relating to models of firm dynamics. It is shown that a hazard regression model for firm exits, with a modification to accommodate age-varying covariate effects, provides an adequate framework accommodating many of the features of interest in empirical studies on firm dynamics. Modelling implications of some of the popular theoretical models are considered and a set of empirical procedures for verifying theoretical implications of the models are proposed.The proposed hazard regression models can accommodate negative effects of initial size that increase to zero with age (active learning model), negative initial size effects that may increase with age, but stay permanently negative (passive learning model), conditional and unconditional hazard rates that decrease with age at higher ages, and adverse effects of macroeconomic shocks that decrease with age of the firm.The methods are illustrated using data on quoted UK firms. Consistent with the activ...
Academy of Management Proceedings, 2018
Past research has provided very inconsistent empirical support for the relationship between aggregate levels of turnover and firm performance. To remedy this controversy, we identify the three main perspectives explaining today's turnover effect, and theorize that the following constructs constitute potent boundary conditions for these theories: 1) different industry types ranging from efficiencyoriented to innovation-dependent, 2) labor market conditions defining the disparity in knowledge between the leaving employee and the replacement, and 3) the overall learning rates of both the organization and its employees. Each of these constructs plays a significant role in shaping the turnover-performance relationship into either one of the acknowledged patterns in the literature.
2009
Portuguese firms engage in intense reallocation, most employers simultaneously hire and separate from workers, resulting in a large heterogeneity of flows and excess turnover. Large and older firms have lower flows, but high excess turnover rates. In small firms, hires and separations move symmetrically during expansion and contraction periods, on the contrary, large firms adjust their employment levels by reducing
2019
Identifying the causal effects of turnover on organizational productivity is challenging, due to data constraints and endogeneity issues. We address these challenges by using day-today variation in the composition and performance of small retail sales teams, and by exploiting an advance notice requirement for quits. We find robust and statistically significant productivity losses at four distinct times during the departure process: after the worker gives notice, before she departs, after she leaves, and after a new worker starts. We attribute the first two effects to a combination of recruitment activities by incumbent workers and reductions in morale, and the last two to short-staffing and on-boarding costs respectively. Two thirds of these costs are incurred before the departing worker leaves, and only 17 percent result from operating with an unfilled vacancy. At 1.08 percent of a typical employee's career output on a team, we estimate that turnover costs can explain only a small fraction of firm wage effects.
Economic Theory, 1999
The paper analyzes the question of which cost characteristics are exhibited by the rms that exit an oligopolistic market when costs are asymmetric and rms can credibly be forced out by the remaining competitors. The main results are: (i) if reentry is impossible (due to the presence of large sunk costs), then the rm with the highest marginal cost function dtays in; if reentry is costless then the rm with the highest average cost exits. Consequenty sunk costs not only aect the number of rms in an industry, but they also enter the determination of the type of rms that resist predation.
LACEA Conference (May), 2001
We study price competition in a model with differentiated products and switching costs. In this model firms charge a price above marginal costs. This positive markup give firms incentives to steal consumers from their rivals. For this purpose, firms hire sales agents that contact customers personally to switch them from one firm to another; they even offer rewards to the switchers. These rewards can be interpreted as price cuts to rival's customers, which is a way of price discriminating in this model. This model is applied to the Chilean Pension Funds Industry. In this case, we observe a strong correlation between the number of sales agents hired and turnover. In 1995 there were more than one sales agent per two hundred customers with a turnover between Pension Fund Administrators of more than 50 percent. This model can also be used to understand the long distance telephone service industry where telemarket and direct mail is used to attract rivals' customers.
Journal of Economic Theory, 1989
This paper considers two models of firm behavior that allow for heterogeneity among firms, idiosyncratic (or firm-specific) sources of uncertainty, and discrete outcomes (exit andÂor entry). Both the characteristics of firm ...
Le Centre pour la Communication Scientifique Directe - HAL - SHS, 2012
As emi-parametric approach is used to estimate firm propensity to exit. The unobserved individual productivity of af irm is first estimated using the Ackerberg et al. (2006) approach and then introduced as a determinant of firm exit in conjunction with other variables that may serve as barriers to exit, including the firm's level of sunk costs and the industry concentration. Using an unbalanced panel of data for 5,849 firms in French food industries from 1996 to 2002, we find as ignificantly negative relationship between af irm's probability to exit and its individual efficiency and age. In addition to validating these well-known results, we also show that the level of sunk costs may be an important barrier to exit. Ultimately, the relationship between the propensity to exit and the industry level of concentration contains at urning point: the relationship is at first increasing but then becomes decreasing.
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