nep-bec New Economics Papers
on Business Economics
Issue of 2016‒01‒18
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Trade, Finance and Endogenous Firm Heterogeneity By Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
  2. Financing Constraints, Radical versus Incremental Innovation, and Aggregate Productivity By Andrea Caggese
  3. Exporting firms and retail internationalization. Evidence from France By Angela Cheptea; Charlotte Emlinger; Karine Latouche
  4. Challenges of Change: An Experiment Training Women to Manage in the Bangladeshi Garment Sector By Macchiavello, Rocco; Menzel, Andreas; Rabbani, Atonu; Woodruff, Christopher
  5. Allocation efficiency in China : an extension of the dynamic Olley-Pakes productivity decomposition By Hashiguchi, Yoshihiro
  6. Wage and Employment Gains from Exports: Evidence from Developing Countries By Irene Brambilla; Nicolas Depetris Chauvin; Guido Porto
  7. Organization of early frog embryos by chemical waves emanating from centrosomes By Ishihara, K.; Nguyen, P. A.; Wühr, M.; Groen, A. C.; Field, C. M.; Mitchison, T. J.
  8. Persistence and Change of Regional New Business Formation in the National League Table By Michael Fritsch; Sandra Kublina
  9. Managers and Productivity Differences By Nezih Guner; Andrii Parkhomenko; Gustavo Ventura
  10. Trade Competition, Technology and Labor Re-allocation By Bahar Baziki, Selva; Ginja, Rita; Borota Milicevic, Teodora
  11. Multiproduct Pricing Made Simple By Armstrong, Mark; Vickers, John
  12. The Multinational Wage Premium and Wage Dynamics By Gianluca Orefice; Nicholas Sly; Farid Toubal
  13. Why has the cyclicality of productivity changed?: what does it mean? By Fernald, John G.; Wang, J. Christina
  14. Outward Foreign Direct Investments Patterns of Italian Firms in the EU ETS By Simone Borghesi; Chiara Franco; Giovanni Marin
  15. Investor Protection and Cash Flow Misclassification By Nagar, Neerav; Sen, Kaustav

  1. By: Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
    Abstract: We study how financial frictions affect firm-level heterogeneity and trade in a model where productivity differences across monopolistically competitive firms are endogenous and depend on investment decisions at the entry stage. By increasing entry costs, financial frictions soften competition and lower the value of investing in bigger projects with more dispersed outcomes. Hence, credit frictions make firms more homogeneous and hinder the volume of exports both along the intensive and the extensive margin. Export opportunities, instead, shift expected profits to the tail and increase the value of technological heterogeneity. We test these predictions using comparable measures of sale dispersion within 365 manufacturing industries in 119 countries, built from highly disaggregated US import data. Consistent with the model, financial development increases sale dispersion, especially in more financially vulnerable industries; sale dispersion is also increasing in measures of comparative advantage. These results are quantitatively important for explaining the effect of financial development and factor endowments on export sales.
    Keywords: financial development, firm heterogeneity, international trade
    JEL: F12 F16 E24
    Date: 2015–12
  2. By: Andrea Caggese
    Abstract: I provide new empirical evidence on a negative relation between financial frictions and productivity growth over firms’ life cycle. I show that a model of firm dynamics with incremental innovation cannot explain such evidence. However also including radical innovation, which is very risky but potentially very productive, allows for joint replication of several stylized facts about the dynamics of young and old firms and of the differences in productivity growth in industries with different degrees of financing frictions. These frictions matter because they act as a barrier to entry that reduces competition and the risk taking of young firms.
    Date: 2015–11
  3. By: Angela Cheptea; Charlotte Emlinger; Karine Latouche
    Abstract: This paper questions the impact of the globalization of the retail sector on the export activity of origin country agri-food firms. In a previous paper (Cheptea et al., 2015), we showed that the overseas expansion of a country’s retailers fostered its exports to foreign markets. This effect can be explained by a reduction in trade costs for retailers’ supplying firms in the origin country, or to a change in consumer preferences in the host country that benefits all origin country firms. In this paper, we evaluate which of the two mechanisms dominates. For that, we use an original firm-level database of French agri-food exports, identifying the domestic suppliers of French retailers through certification with the private IFS standard. We find that IFS certified French firms are more likely to export and export larger volumes than noncertified firms to markets where French retailers established outlets. We also show that when French retailers close down their activities in a market, IFS firms face a drop in exports to this market in the subsequent years. The results are robust to the use of different sets of firm- and country-specific fixed effects, are unaffected by possible selection and endogeneity biases, and by the presence in export markets of other retailers. The difference in behavior for certified and non-certified exporting firms on markets where French retailers operate confirms the trade cost advantage of retailers’ suppliers, which is lost when French retailers exit from the destination country.
    Keywords: multinational retailers, firm-level exports, private standards
    JEL: F12 F14 F23
    Date: 2015
  4. By: Macchiavello, Rocco (University of Warwick); Menzel, Andreas (University of Warwick); Rabbani, Atonu (University of Dhaka); Woodruff, Christopher (University of Warwick)
    Abstract: Large private firms are still relatively rare in low-income countries, and we know little about how entry-level managers in these firms are selected. We examine a context in which nearly 80 percent of production line workers are female, but 95 percent of supervisors are male. We evaluate the effectiveness of female supervisors by implementing a training program for selected production line workers. Prior to the training, we find that workers at all level of the factory believe males are more effective supervisors than females. Careful skills diagnostics indicate that those perceptions do not always match reality. When the trainees are deployed in supervisory roles, production line workers initially judge females to be significantly less effective, and there is some evidence that the lines on which they work underperform. But after around four months of exposure, both perceptions and performance of female supervisors catch up to those of males. We document evidence that the exposure to female supervisors changes the expectations of male production workers with regard to promotion and expected tenure in the factory.
    Date: 2015
  5. By: Hashiguchi, Yoshihiro
    Abstract: This paper develops a quantitative measure of allocation efficiency, which is an extension of the dynamic Olley-Pakes productivity decomposition proposed by Melitz and Polanec (2015). The extended measure enables the simultaneous capture of the degree of misallocation within a group and between groups and parallel to capturing the contribution of entering and exiting firms to aggregate productivity growth. This measure empirically assesses the degree of misallocation in China using manufacturing firm-level data from 2004 to 2007. Misallocation among industrial sectors has been found to increase over time, and allocation efficiency within an industry has been found to worsen in industries that use more capital and have firms with relatively higher state-owned market shares. Allocation efficiency among three ownership sectors (state-owned, domestic private, and foreign sectors) tends to improve in industries wherein the market share moves from a less-productive state-owned sector to a more productive private sector.
    Keywords: China, Productivity, Business enterprises, Economic growth, Macroeconomics, Misallocation, Firm-level productivity, Structural estimation
    JEL: D24 O47
    Date: 2015–11
  6. By: Irene Brambilla; Nicolas Depetris Chauvin; Guido Porto
    Abstract: We study the relationship between exports, employment, and wages in developing countries using both firm and industry level data. The firm level data shows that on average exporters pay 31 percent higher wages than non-exporters. The data also reveals that exporting firms are on average much larger. We build a model that allows us to study the main mechanisms that explain the export premium. These are skilled labor utilization, technology sophistication, imported input use, and productivity. We find that, conditional on all the mechanisms, the wage export premium disappears completely. To establish causality we use firm-level panel data from Chile and instrument variables capturing exogenous export opportunities for firms. The estimations show that conditional on size, firms that export a higher share of their total sales utilize more skilled (and also highly-skilled) workers, and less unskilled workers. This implies that exporters need to perform skill intensive activities and tasks. We finally assess the argument that exporting per se may not necessarily lead to higher skill utilization and what matters is the destination of a firms' exports. We use a panel of industries and countries to establish whether the destination of a country's exports is relevant for skill utilization and to take this as evidence of a demand for high quality products in export markets. We find robust evidence that, worldwide, industries that ship products to high-income destinations do pay higher average wages. We also find that industries that ship products to high-income destination export higher quality goods and that the provision of quality is costly and require more intensive use of higher-wage skilled labor.
    Keywords: export wage premium;exports to high-income destination;skill utilization
    JEL: F13 F14 J23
    Date: 2015–12
  7. By: Ishihara, K.; Nguyen, P. A.; Wühr, M.; Groen, A. C.; Field, C. M.; Mitchison, T. J.
    Abstract: The large cells in early vertebrate development face an extreme physical challenge in organizing their cytoplasm. For example, amphibian embryos have to divide cytoplasm that spans hundreds of micrometres every 30 min according to a precise geometry, a remarkable accomplishment given the extreme difference between molecular and cellular scales in this system. How do the biochemical reactions occurring at the molecular scale lead to this emergent behaviour of the cell as a whole? Based on recent findings, we propose that the centrosome plays a crucial role by initiating two autocatalytic reactions that travel across the large cytoplasm as chemical waves. Waves of mitotic entry and exit propagate out from centrosomes using the Cdk1 oscillator to coordinate the timing of cell division. Waves of microtubule-stimulated microtubule nucleation propagate out to assemble large asters that position spindles for the following mitosis and establish cleavage plane geometry. By initiating these chemical waves, the centrosome rapidly organizes the large cytoplasm during the short embryonic cell cycle, which would be impossible using more conventional mechanisms such as diffusion or nucleation by structural templating. Large embryo cells provide valuable insights to how cells control chemical waves, which may be a general principle for cytoplasmic organization.
  8. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Sandra Kublina (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: We investigate persistence and change of the levels of regional new business formation in West Germany over a period of thirty years. Our indicator is the position of a region in the national ranking. As indicated by previous studies, we generally find a rather high level of persistence and confirm the role of several sources of this persistence, namely, persistence in regional determinants of new business formation, distinct regional cultures of entrepreneurship, and path dependence in new business formation activity. There are, however, also a number of regions that have moved up or down in the national ranking by a considerable number of positions. We find that main factors that are related to such rank changes are R&D activities, industry diversity, and regional wage levels.
    Keywords: Entrepreneurship, new business formation, economic development, regional growth regimes
    JEL: L26 R11 O11
    Date: 2016–01–04
  9. By: Nezih Guner; Andrii Parkhomenko; Gustavo Ventura
    Abstract: We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our findings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% – more than half of the observed gap between the U.S. and Italy. We find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S.
    Keywords: managers, management practices, distortions, size, skill investments, productivity differences
    JEL: E23 E24 J24 M11 O43 O47
    Date: 2015–12
  10. By: Bahar Baziki, Selva (Central Bank of the Republic of Turkey); Ginja, Rita (Uppsala Center for Labor Studies); Borota Milicevic, Teodora (Uppsala Center for Labor Studies)
    Abstract: This paper studies the changes in labor allocation across firms and industries in response to changes in technology (captured by the adoption of information and communication technologies, ICT) and import competition, due to increased exposure to trade competition from China. We use detailed matched worker-firm data from the Swedish manufacturing sector. We provide new evidence on the mobility of heterogeneous workers across firms and document increased assortative matching of workers in ICT intensive industries. However, the sorting patterns are not uniform across industries within this group. The adoption of ICT along with stronger Chinese import competition results in a significant skill upgrade within high-wage firms. Incontrast,intheabsence of strong pressures in importcompetition, sorting occurs at the low end of the worker-firm distribution, i.e. low-skill workers allocate to low-wage firms. Industries with low ICT intensity do not exhibit any of these sorting patterns. We rationalize our empirical findings through a labor market matching model which is able to explain the increased assortative matching in ICT intensive industries through an increase in the relative demand for qualified workers.
    Keywords: Wage Inequality; Employment Dynamics; Assortative Matching; Import Competition; Technological Change
    JEL: E24 F16 J31 J63 O33
    Date: 2015–12–26
  11. By: Armstrong, Mark; Vickers, John
    Abstract: We study pricing by multiproduct firms in the context of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then present a tractable class of demand systems that involve a generalized form of homothetic preferences. As well as standard homothetic preferences, this class includes linear and logit demand. Within the class, profit-maximizing quantities are proportional to efficient quantities. We discuss cost-passthrough, including cases where optimal prices do not depend on other products' costs. Finally, we discuss optimal monopoly regulation when the firm has private information about its vector of marginal costs, and show that if the probability distribution over costs satisfies an independence property, then optimal regulation leaves relative price decisions to the firm.
    Keywords: Multiproduct pricing, homothetic preferences, Cournot oligopoly, monopoly regulation, Ramsey pricing, cost passthrough, multidimensional screening
    JEL: D42 D43 D82 L12 L13 L51
    Date: 2016–01–08
  12. By: Gianluca Orefice; Nicholas Sly; Farid Toubal
    Abstract: Using detailed administrative data linking French firms and workers over the years 2002-2007, we document a distinct U-shaped pattern in worker-level wages surrounding the time their employer is acquired by a foreign firm, with a dip in earnings observed in years just before domestic firms switch to MNE status. The dip in earnings is evident in both wages and in-kind payments given to workers. To guide our empirical approach, we present a simple model with fair wage considerations among workers and endogenous cross-border acquisition activity that predicts this U-shaped pattern, and characterizes the selection of domestic targets for acquisition by an MNE.
    Keywords: multinational enterprises;wage premium;in-kind payments;fair wages
    JEL: F14 F23
    Date: 2015–12
  13. By: Fernald, John G. (Federal Reserve Bank of San Francisco); Wang, J. Christina (Federal Reserve Bank of Boston)
    Abstract: Historically, U.S. labor productivity (output per hour) and total factor productivity (TFP) rose in booms and fell in recessions. Different models of business cycles explain this procyclicality differently. Traditional Keynesian models relied on "factor hoarding," that is, variations in how intensively labor and capital were utilized over the business cycle. Real business cycle (RBC) models instead posit that procyclical technology shocks drive the business cycle. Since the mid-1980s, however, the procyclicality of productivity has waned. TFP has been roughly acyclical with respect to inputs, whereas labor productivity has become significantly countercyclical. The slow pace of productivity growth after 2010, when the post-Great- Recession recovery gained a firm footing, is broadly consistent with these patterns. In this paper, the authors seek to understand empirically the forces behind the changing cyclicality of productivity.
    Keywords: procyclical productivity; labor hoarding; business cycles; growth-accounting; DSGE models
    JEL: E22 E23 E32 O47
    Date: 2015–10–01
  14. By: Simone Borghesi (University of Siena, Italy.); Chiara Franco (Catholic University of Sacred Heart, Milano, Italy.); Giovanni Marin (IRCrES-CNR, Milano, Italy.)
    Abstract: We consider the role played by the EU Emission Trading System (EU ETS) as a possible driver of outward Foreign Direct Investments (FDI henceforth). In particular, we aim at assessing whether EU ETS has any effect on outward FDI patterns of Italian firms. Using a novel panel dataset of about 59,000 firms covering the first two phases of the EU ETS and the pre-EU ETS period, we are able to observe the patterns of FDI by destination country of firms, distinguishing between those with plants covered by the EU ETS and other firms. Results show that, on average, firms in the EU ETS do not increase their presence in other countries. However, EU ETS firms operating in sectors particularly exposed to international competition increase their outward FDI towards countries not covered by the EU ETS.
    Keywords: EU ETS, FDI, carbon leakage
    JEL: F23 L23 Q50
    Date: 2016–01
  15. By: Nagar, Neerav; Sen, Kaustav
    Abstract: Research Question/Issue: We analyze whether cash flow misclassification is likely to be higher in the countries with weak investor protection. We also test whether managers use different strategies to misclassify cash flows. Research Findings/Insights: We focus on an emerging market, India, which is characterized by weak corporate governance and investor protection, and the United States and present evidence that the magnitude of cash flow misclassification is higher for the firms in India. Further, Indian firms in financial distress are more likely to manipulate operating cash flows as compared to the financially distressed firms in the United States by engaging in such misclassification. Managers manipulate operating cash flows by shifting operating cash outflows to investing and financing cash outflows, and investing and financing cash inflows to operating cash inflows. Theoretical/Academic Implications: We present first evidence that the magnitude of cash flow manipulation through misclassification is associated with weak investor protection and governance. We also present an improved methodology to capture the strategies for such misclassification. Practitioner/Policy Implications: Our results indicate that cash flows are as prone to manipulation and misclassification as the earnings. These may be useful to regulators and auditors in India and other countries with weak investor protection, where they need to monitor the cash flow reporting closely.

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