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on Business Economics |
| By: | S. Calligaris (University of Rome Tor Vergata); M. Del Gatto (University of Pescara); F. Hassan (Trinity College Dublin); G.I.P. Ottaviano (London School of Economics); F. Schivardi (Bocconi University) |
| Abstract: | This paper provides a detailed analysis of the patterns of misallocation in Italy since the early 1990s. In particular, we show that the extent of misallocation has substantially increased since 1995, and that this increase can account for a large fraction of the Italian productivity slowdown since then. We gather evidence on the evolution of firm level misallocation both within and between various categories of firms, in particular those based on geographic areas, industries, and firm size classes. We do so both for firms in manufacturing and for firms in non-manufacturing. Overall, looking at the distribution of firm productivity, we uncover a thickening of the left tail as the share of firms with low productivity has increased over the period. This implies not only a decrease in average firm productivity, but also an increase in its dispersion. We show that the increase in misallocation has come mainly from higher dispersion of productivities within different firm size classes and geographical areas rather than between them. Crucially, we highlight that rising misallocation has hit firm categories that are traditionally the spearhead of the Italian economy such as firms in the Northwest and big firms. We also produce evidence that, while the 2008 crisis seems to have triggered, at least until 2013, a ‘cleansing effect’ of the least productive firms in the manufacturing sector as a whole, in non-manufacturing industries one observes the survival of firms with even lower productivities than they used to have. Finally, we propose a novel methodology to assess which firm characteristics are more strongly associated with misallocation. In particular, we investigate the role of corporate ownership/control and governance, finance, workforce composition, internationalisation, cronyism and innovation. Together with the other findings already highlighted, the analysis of those ‘markers’ provides the ground for a policy-oriented discussion on how to tackle the Italian productivity slowdown. |
| JEL: | D22 D24 O11 O47 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:030&r=bec |
| By: | Brian Bell; John Van Reenen |
| Abstract: | Would moving to relative performance contracts improve the alignment between CEO pay and performance? To address this we exploit the large rise in relative performance awards and the share of equity pay in the UK over the last two decades. Using new employer-employee matched datasets we find that the CEO pay-performance relationship remains asymmetric: pay responds more to increases in shareholders' return performance than to decreases. Further, this asymmetry is stronger when governance appears weak. Second, there is substantial "pay-for-luck" as remuneration increases with random positive shocks, even when the CEO has equity awards that explicitly condition on firm performance relative to peer firms in the same sector. A reason why relative performance pay fails to deal with pay for luck is that CEOs who fail to meet the terms of their past performance awards are able to obtain more generous new equity rewards in the future. Moreover, this "compensation effect" is stronger when the firm has weak corporate governance. These findings suggest that reforms to the formal structure of CEO pay contracts are unlikely to align incentives in the absence of strong shareholder governance. |
| Keywords: | CEO, pay, incentives, equity plans |
| JEL: | J33 J31 G30 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1439&r=bec |
| By: | Theodosios DIMOPOULOS (University of Lausanne and Swiss Finance Institute); Stefano SACCHETTO (Tepper School of Business, Carnegie Mellon University) |
| Abstract: | We study a dynamic industry-equilibrium model that features mergers, entry, and exit by heterogeneous firms. We show how different sources of synergies affect merger cyclicality. Improvements in marginal productivity between merging firms generate a procyclical motive for mergers, while reductions in fixed costs of production generate a countercyclical one. The presence of a merger market makes poorly performing firms less likely to exit the industry in recessions, and it increases the mean and variance of the cross-sectional distribution of firm-level productivities. Consistent with the empirical evidence, we show that announcement returns for large acquirers are lower than for small acquirers, despite large acquirers' higher Tobin's Q. |
| Keywords: | Mergers, Industry Equilibrium |
| JEL: | D21 D92 E22 E32 G34 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1456&r=bec |
| By: | Müller, Steffen; Neubäumer, Renate |
| Abstract: | This paper analyzes how life-cycle unemployment of former apprentices depends on the size of the training firm. We start from the hypotheses that the size of training firms reduces long-run cumulated unemployment exposure, e.g. via differences in training quality and in the availability of internal labor markets, and that the access to large training firms depends positively on young workers' ability and their luck to live in a region with many large and medium-sized training firms. We test these hypotheses empirically by using a large administrative data set for Germany and find corroborative evidence. |
| Keywords: | unemployment,training,apprenticeship,young workers,mobility,firm size |
| JEL: | D21 L10 L25 L26 L29 M13 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:iwh-5-16&r=bec |
| By: | Geoffrey Barrows; Hélène Ollivier |
| Abstract: | We study how market conditions shape aggregate CO2 emission intensity from manufacturing. We first develop a multi-product multi-factor model with heterogeneous firms, variable markups, and monopolistic competition in which each product has a specific emission intensity. Competition affects output shares across heterogeneous firms, product-mix across heterogeneous products, and technological choice within firm-product lines. We find that increased competition shifts production to cleaner firms, but has ambiguous effects on withinfirm changes in emission intensity via product-mix and technology adoption. Next, using detailed firm-product emission intensity data from India, we find core-competency products tend to be cleaner than non-core products; but since market conditions have induced Indian firms to shift production away from core-competency, product-mix has increased CO2 emission intensity in India by 49% between 1990-2010. These emission intensity increases are offset by reductions within firm-product lines and by across-firm share shifts, so aggregate emission intensity has actually fallen by 50%. |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:lsg:lsgwps:wp245&r=bec |
| By: | Mukunoki, Hiroshi |
| Abstract: | In a three-country oligopoly model, this paper analyzes a country's decisions concerning antidumping (AD) action against two foreign countries and the relationship between those decisions and regional trade agreements (RTAs). An RTA intensifies product-market competition in the markets of member countries and lowers product prices, while it raises export prices of goods subject to tariff reductions. This effect widens the dumping margin of the non-member firm and narrows the dumping margin of the member firm. If the government is more concerned with domestic firm profit in its AD decision, the RTA may invoke the member's AD action against the nonmember. If the governments attach a sufficiently high value on social welfare, however, the RTA may promote the AD action against the member. If the governments' weight on the domestic firm's profit is neither high nor low, an RTA may block the AD actions against both countries. |
| Keywords: | International trade, International agreements, Preferential trade liberalization, Antidumping, International oligopoly |
| JEL: | F12 F13 F15 L13 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper611&r=bec |
| By: | Kjetil Storesletten (University of Oslo); Gueorgui Kambourov (University of Toronto); Loren Brandt (University of Toronto) |
| Abstract: | We study the effect of a large SOE (State-Owned Enterprises) sector on economic growth and document that localities (prefectures) in China with a large SOE sector in 1995 experienced a smaller economic growth than those with a small SOE sector in 1995. We show that one important mechanism through which the size of the SOE sector affects economic growth is the effect on firm entry in the non-SOE sector. In prefectures with a high SOE output share, non-SOE firm entry is small and the entrants have low TFP, labor productivity, and level of capital. We also infer the capital and output wedges that firms in the non-SOE and the SOE sector are facing in 1995 and 2004. We conclude that these wedges alone cannot account for the documented facts on non-SOE firm entry and that the analysis needs to incorporate a feature that would operate as a start-up cost (or an entry wedge). We build a heterogeneous firm model with endogenous entry to help understand the non-SOE entry patterns in the cross section in 1995. Then, we use the model to analyze the effect of a number of changes in the economic environment in China between 1995 and 2004. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:182&r=bec |
| By: | Zsolt Csáfordi (Hungarian Academy of Sciences CERS, Institute of Economics); László Lőrincz (Hungarian Academy of Sciences CERS, Institute of Economics); Balázs Lengyel (Hungarian Academy of Sciences CERS, Institute of Economics); Károly Miklós Kiss (Hungarian Academy of Sciences CERS, Institute of Economics) |
| Abstract: | Labor flows are major source of knowledge spillover between companies, in which the characteristics of the companies play an important role. Previous research found the more productive the sending firm is he bigger effect of labor flows on the productivity of the receiving firm. Another literature claims that domestic firms benefit from labor flows from multinational enterprises (MNE). We test these arguments by analyzing an anonymized employer-employee linked panel database from Hungary for the 2003-2011 period and also look at the similarity of necessary skills in the sending and receiving firm because industry-specific skills of employee’s matter in organizational learning and therefore in productivity growth. We construct the skill-relatedness network of industries based on inter-industry labor mobility and distinguish related and non-related labor inflows by comparing the observed level of mobility to an expected level of mobility. Our results suggest that labor flows from more productive firms increases the effect of labor flows significantly. Domestic companies obtain productivity gains from labor inflows coming from MNEs; however, inflows from MNEs have the greatest positive effect if the receiving firm is also a MNE. The effect of flows from skill-related industries, and particularly from the same industry outperform the effect of flows from unrelated industries, however, these effects are mitigated by the relative productivity effect. |
| Keywords: | skill-relatedness network, firm productivity, knowledge spillover, labor mobility, productivity gap, firm ownership |
| JEL: | D22 J24 J60 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:4006263&r=bec |
| By: | Buchholz, Manuel; Tonzer, Lena; Berner, Julian |
| Abstract: | This paper analyzes how firm-specific uncertainty affects firms' propensity to invest. We measure firm-specific uncertainty as firms' absolute forecast errors derived from survey data of German manufacturing firms over 2007-2011. In line with the literature, our empirical findings reveal a negative impact of firm-specific uncertainty on investment. However, further results show that the investment response is asymmetric, depending on the size and direction of the forecast error. The investment propensity declines significantly if the realized situation is worse than expected. However, firms do not adjust their investment if the realized situation is better than expected, which suggests that the uncertainty effect counteracts the positive effect due to unexpectedly favorable business conditions. This can be one explanation behind the phenomenon of slow recovery in the aftermath of financial crises. Additional results show that the forecast error is highly concurrent with an ex-ante measure of firm-specific uncertainty we obtain from the survey data. Furthermore, the effect of firm-specific uncertainty is enforced for firms that face a tighter financing situation. |
| Keywords: | risk climate,microeconomic survey data,forecast errors,firm investment,uncertainty |
| JEL: | D22 D84 E32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:iwh-7-16&r=bec |
| By: | Marina DRUZ (University of Lugano and Swiss Finance Institute); Alexander F. WAGNER (University of Zurich, Swiss Finance Institute, CEPR, and ECGI); Alexander Richard J. ZECKHAUSER (Harvard University and NBER) |
| Abstract: | Stock prices react significantly to the tone (negativity of words) managers use on earnings conference calls. This reaction reflects reasonably rational use of information. “Tone surprise” -- the residual when negativity in managerial tone is regressed on the firm’s recent economic performance and CEO fixed effects -- predicts future earnings and analyst uncertainty. Prices move more, as hypothesized, in firms where tone surprise predicts more strongly. Experienced analysts respond appropriately in revising their forecasts; inexperienced analysts overreact (underreact) to tone surprises in presentations (answers). Post-call price drift, like post-earnings announcement drift, suggests less-than-full-use of information embedded in managerial tone. |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1502&r=bec |
| By: | Colonnello, Stefano; Herpfer, Christoph |
| Abstract: | We estimate the link between the court system and firm value by exploiting a U.S. Supreme Court ruling which changed firms' exposure to different courts. We find that exposure to courts which are highly ranked by the U.S. Chamber of Commerce increases firm value. The effect is driven by courts' attitude towards businesses more than by their efficiency and is more pronounced for firms in industries with high litigation risk. We also test whether firms benefit from the ability to steer lawsuits into friendly courts, so-called forum shopping. We provide evidence that a reduction in firms' ability to forum shop decreases firm value, whereas a reduction in plaintiffs' ability to forum shop increases firm value. |
| Keywords: | courts,forum shopping,circuit splits,governance |
| JEL: | G32 G34 G38 K40 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:iwh-1-16&r=bec |
| By: | Natalia Ramondo (UCSD); Felix Tintelnot (University of Chicago); Andreas Moxnes (University of Oslo); Anna Gumpert (University of Munich) |
| Abstract: | This paper provides new evidence on the dynamics of multinational firms and exporters based on firm-level panel data for Norway, France, and Germany. First, exit rates for new exporters almost triple the ones for new affiliates of multinational firms, while multinational firms with previous export experience show the lowest exit rates. Second, new affiliates of multinational firms have flatter sales growth profiles than exporters. Finally, firms that transition from exporting to FDI are larger than continuing multinational firms. We show that a simple dynamic extension of a model in which firms choose to serve a foreign market through exports or affiliate sales facing a "proximity-concentration tradeoff", as in Helpman, Melitz, and Yeaple (2004), captures these patterns quali- tatively. We show that quantitatively the model goes a long way in explaining the dynamic patterns observed in the data. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:124&r=bec |
| By: | Guglielmo Maria Caporale; Mario Cerrato; Xuan Zhang |
| Abstract: | Abstract This paper estimates a reduced-form model to assess the credit risk of General Insurance (GI) non-life firms in the UK. Compared to earlier studies, it uses a much larger sample including 30 years of data for 515 firms, and also considers a much wider set of possible determinants of credit risk. The empirical results suggest that macroeconomic and firm-specific factors both play important roles. Other key findings are the following: credit risk varies across firms depending on their business lines; there is default clustering in the GI industry; different reinsurance levels also affect the credit risk of insurance firms. The implications of these findings for regulators of GI firms under the coming Solvency II are discussed. |
| Keywords: | Insolvent, Doubly Stochastic, Insurance, Reinsurance |
| JEL: | G22 C58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1591&r=bec |
| By: | Mayer, Thierry; Melitz, Marc J; Ottaviano, Gianmarco |
| Abstract: | We document how demand shocks in export markets lead French multi-product exporters to re-allocate the mix of products sold in those destinations. In response to positive demand shocks, those French firms skew their export sales towards their best performing products; and also extend the range of products sold to that market. We develop a theoretical model of multi- product firms and derive the specific demand and cost conditions needed to generate these product-mix reallocations. Our theoretical model highlights how the increased competition from demand shocks in export markets - and the induced product mix reallocations - induce productivity changes within the firm. We then empirically test for this connection between the demand shocks and the productivity of multi-product firms exporting to those destinations. We find that the effect of those demand shocks on productivity are substantial - and explain an important share of aggregate productivity fluctuations for French manufacturing. |
| JEL: | F1 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11389&r=bec |
| By: | Ishido, Hikari |
| Abstract: | This paper examines the determinants of foreign direct investment (FDI) under free trade agreements (FTAs) from a new institutional perspective. First, the determinants of FDI are theoretically discussed from a new institutional perspective. Then, FDI is statistically analyzed at the aggregate level. Kernel density estimation of firm-size reveals some evidence of "structural changes" after FTAs, as characterized by the investing firms' paid-up capital stock. Statistical tests of the average and variance of the size distribution confirm this in the case of FTAs with Asian partner countries. For FTAs with South American partner countries, the presence of FTAs seems to promote larger-scale FDIs. These results remain correlational instead of causal, and more statistical analyses would be needed to infer causality. Policy implications suggest that participants should consider "institutional" aspects of FTAs, that is, the size matters as a determinant of FDI. Future work along this line is needed to study "firm heterogeneity." |
| Keywords: | Foreign investments, International trade, International agreements, Foreign direct investment, Trade in services, Free trade agreements, ASEAN countries, Location choice |
| JEL: | F14 F15 F21 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper608&r=bec |
| By: | Pau Roldan (New York University); Laurent Cavenaile (New York University) |
| Abstract: | We develop a model of firm dynamics through product innovation that explicitly incorporates advertising decisions by firms. We model advertising by constructing a framework that unifies a number of facts identified by the empirical marketing literature. The model is then used to explain several empirical regularities across firm sizes using U.S. data. Through a novel interaction between R&D and advertising, we are able to explain empirically observed deviations from Gibrat’s law, as well as the behavior of advertising expenditures across firms, the degree of substitution between R&D and advertising expenditures as firms grow large, and broadly the effects of advertising on both firm and economic growth. We find that smaller firms can be both more innovation- and advertising-intensive as in the data even when there exist increasing returns to scale in research. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:150&r=bec |
| By: | Bryson, Alex (University College London); Forth, John (National Institute of Economic and Social Research (NIESR)) |
| Abstract: | Small and medium-sized enterprises (SMEs) are known to contribute significantly to aggregate economic growth. However, little is known about the role played by management practices in SME growth since recession. We contribute to the literature on SME growth by analysing longitudinal administrative data on firms' employment and turnover, taken from the UK's Business Structure Database (BSD), with data on management practices collected in face-to-face interviews from the HR Managers and employees who were surveyed as part of the 2011 British Workplace Employment Relations Survey (WERS). We find off-the-job training is the only management practice that is robustly and significantly associated with higher employment growth, increased turnover, and a decline in closure probabilities, over the period 2011-2014. The findings suggest SME investment in off-the-job training is sub-optimal in Britain such that firms could benefit economically from increasing the amount of off-the-job training they offer to their non-managerial employees. |
| Keywords: | SMEs, small and medium-sized enterprises, employment growth, sales, workplace closure, HRM, training, recession |
| JEL: | L25 M12 M50 M53 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10042&r=bec |