Renáta Kosová

Do Foreign Firms Crowd Out Domestic Firms? Evidence from the Czech Republic

I examine how foreign presence affects the growth and survival of domestic firms. Separating a negative crowding out and positive technology spillovers, I analyze whether the crowding out effect is dynamic, that is, domestic firms cut production over time as foreign firms grow, or a static effect realized on foreign entry into the industry. Using 19942001 firm-level Czech data, I find evidence of both technology spillovers and crowding out. However, crowding out is only short term; after initial entry shakeout, growing foreign sales increase domestic firm growth and survival, indicating domestic demand creation effect. However, I find no such benefits from domestic competition.

Does FDI Facilitate Domestic Entry? Evidence from the Czech Republic

This paper analyzes the impact of FDI on domestic firm entry and firm size distributions in the Czech Republic during 1994–2000. We find that larger foreign presence stimulates the entry of domestic firms within the same industry, indicating the existence of positive horizontal spillovers from FDI. We also find evidence of significant vertical entry spillovers—FDI in downstream (upstream) industries initiates entry in upstream (downstream) sectors. Our results also show that entry spillovers through vertical linkages are stronger than horizontal spillovers and that while service industries benefit from both horizontal and vertical spillovers, manufacturing industries do not experience significant positive entry spillovers of any kind. We also find that country of origin of FDI matters—horizontal spillovers are driven by FDI from the EU countries. The right skewness of the firm size distributions in industries without FDI further emphasizes an important role of FDI presence for overall industry dynamics.

SURVIVAL AND GROWTH IN RETAIL AND SERVICE INDUSTRIES: EVIDENCE FROM FRANCHISED CHAINS *

Using data on franchised chains, which are the type of single-product entities emphasized in industry dynamics models, we show that age and size affect growth and survival even after controlling for chain characteristics and unobserved chain-specific efficiency. This implies that age and size affect firm growth and survival for reasons other than those emphasized in learning-type models. We also find that several chain characteristics affect growth and survival directly, and thus controlling for firm characteristics is important. Finally, we find that chain size increases rather than decreases exit among young chains, and chains converge in size over time.

Agency and Compensation: Evidence from the Hotel Industry

We examine how agency problems in the workplace interact with compensation policies by taking advantage of the structure of the hotel industry, in which many chains have both company-managed and franchised properties. As residual claimants on their properties’ profits, franchisees have stronger incentives to monitor employees than managers in company-managed hotels. Exploiting this variation and using rich, longitudinal data on the hotel industry, we estimate differences in wages and human resource practices across company-managed and franchised hotels within chains as well as within individual hotels as they change organizational form. Our results suggest that the timing of pay and the propensity to use performance-based incentives relate to the extent of agency problems within establishments. (JEL J31, J41, L23, L83)

The Terrorist Attacks of 9/11 and the Financial Crisis of 2008 The Impact of External Shocks on U.S. Hotel Performance

The U.S. hotel industry faced two major external shocks in the decade of the 2000s, the terrorist attacks of September 11, 2001, and the financial crisis of September 2008, which led to an economic recession. Using data from STR covering nearly 35,000 hotels, this study isolates the specific effects of the two shocks by controlling for other market factors (e.g., inflation, seasonality) and hotel characteristics (e.g., hotel size, segment, or operation type) that affect a hotel’s daily operations. The study shows that hotels were significantly affected by both events, but they started to recover relatively quickly, within four months of each shock. Because of the nature of the shock, the 9/11 terrorist attacks had an abrupt and dramatic impact in reducing hotels’ occupancy, and rates briefly followed occupancy downward. The effects of the financial crisis took longer to develop but were less striking and apparently well handled by most hotel managers. Looking specifically at New York City’s hotels which stand next to ground zero for both shocks, the study found a pattern of occupancy, ADR, and RevPAR similar to that of the nation as a whole. New York’s luxury hotels felt the brunt of the shocks, but they were able to recover. Overall, the study paints a picture of an industry that maintains its ability to address the effects of environmental shocks, and focuses well on revenue management. Far from being in disarray, hotel management addressed the effects of these two shocks, as evidenced by the hotels’ recovery.

Boom and Gloom

We study the performance of investments made at different points of an investment cycle. We use a large data set covering hotels in the U.S., with rich details on their location, characteristics and performance. We find that hotels built during hotel construction booms underperform their peers. For hotels built during local hotel construction booms, this underperformance persists for several decades. We examine possible explanations for this long-lasting underperformance. The evidence is consistent with information-based herding explanations.

Inter-Industry Employment Spillovers from Tourism Inflows

How much economic stimulus does tourism provide by generating jobs in various local industry sectors? Using data across 43 U.S. metropolitan statistical areas during 1987–2006, we analyze the impact of tourism inflows — proxied by the number of hotel rooms sold — on the employment in 22 non-hotel industries. We estimate a dynamic labor demand model with inter-industry spillover effects, using various estimators including GMM-based dynamic panel methods. We find statistically and economically significant effects — an additional 100 rooms sold per day during a year in a given MSA generates between 2 and 5 new jobs per non-hotel industry in that area. Subsample analyses across industries indicate that construction, retail, health care, professional and technical services are among the largest beneficiaries of these spillovers.

Terrorism and The Financial Crisis of 2008: The Impact of External Shocks on US Hotel Performance

The U.S. hotel industry faced two major external shocks in the decade of the 2000s, the terrorist attacks of September 11, 2001, and the financial crisis of September 2008, which led to an economic recession. Using data from STR covering nearly 35,000 hotels, this study isolates the specific effects of the two shocks by controlling for other market factors (e.g., inflation, seasonality) and hotel characteristics (e.g., hotel size, segment, or operation type) that affect a hotel’s daily operations. The study shows that hotels were significantly affected by both events, but they started to recover relatively quickly, within four months of each shock. Because of the nature of the shock, the 9/11 terrorist attacks had an abrupt and dramatic impact in reducing hotels’ occupancy, and rates briefly followed occupancy downward. The effects of the financial crisis took longer to develop but were less striking and apparently well handled by most hotel managers. Looking specifically at New York City’s hotels which stand next to ground zero for both shocks, the study found a pattern of occupancy, ADR, and RevPAR similar to that of the nation as a whole. New York’s luxury hotels felt the brunt of the shocks, but they were able to recover. Overall, the study paints a picture of an industry that maintains its ability to address the effects of environmental shocks, and focuses well on revenue management. Far from being in disarray, hotel management addressed the effects of these two shocks, as evidenced by the hotels’ recovery.

An Empirical Analysis of Self-Enforcement Mechanisms: Evidence from Hotel Franchising

The relational contracts literature suggests that a principal can improve contract self-enforceability by specifying initial requirements that increase the agent’s ex post rents. Initial requirements specified in hotel franchise agreements—size and quality tier of the hotel—offer a unique empirical setting to test this. Using proprietary data on 5,547 new franchised hotels and their revenues, we find that hotels far away from their franchisor’s headquarters are larger, more likely to belong to a high quality tier, and generate higher revenues ex post. This supports the idea that the agent’s ex post rents can serve as a substitute to the principal’s monitoring intensity in the mitigation of agency problems. Our findings shed light on how formal contract terms can influence informal (relational) contracts between business partners. This paper was accepted by Bruno Cassiman, business strategy.

Post-sale service and the limits of reputation

In the standard durable goods-quality model, the prospect of repeat sales often supports the provision of high-quality durable goods. When durable goods require costly post-sale service, however, a reputational equilibrium may not exist at any price, even with a flow of profitable new sales indefinitely into the future. This article characterizes the size of the premium needed to make provision of post-sale service self enforcing and then uses historical records to assess the self-enforcing post-sale service premia for United Shoe Machinery, IBM, and Xerox. Copyright 2013 The Author 2013. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.