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on Business Economics |
| By: | Rosario Crino (Catholic University of Milan); Gino Gancia (CREI); Alessandra Bonfiglioli (Universitat Pompeu Fabra) |
| 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 reduce the exit cutoff thereby lowering 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. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:342&r=bec |
| By: | Rosario Crino (Catholic University of Milan); Gino Gancia (CREI); Alessandra Bonfiglioli (Universitat Pompeu Fabra) |
| Abstract: | We study the equilibrium determinants of firm-level heterogeneity in a model in which firms can affect the variance of their productivity draws at the entry stage and explore the implications in closed and open economy. By allowing firms to choose the size of their investment in innovation projects of unknown quality, the model yields a Pareto distribution for productivity with a shape parameter that depends on industry-level characteristics. A novel result is that export opportunities, by increasing the payoffs in the tail, induce firms to invest in bigger projects with more spread-out outcomes. Moreover, when more productive firms also pay higher wages, trade amplifies wage dispersion by making all firms more unequal. These results are consistent with new evidence on how firm-level heterogeneity and wage dispersion vary in a panel of U.S. industries. Finally, we use patent data across U.S. states and over time to provide evidence in support of a specific mechanism of the model, namely, that export opportunities increase firm heterogeneity by fostering innovation. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:327&r=bec |
| By: | Piotr Gabrielczak (Faculty of Economics and Sociology, University of Lodz); Tomasz Serwach (Faculty of Economics and Sociology, University of Lodz) |
| Abstract: | The paper investigates the link between firm-level productivity and internationalization (through exports, imports and FDI) in the Lodz Voivodeship, Poland. Two hypotheses have been tested –self-selection and learning by internationalization. It has been found that productivity may affect import and FDI decisions of firms, while there is no evidence of such an effect regarding exports. At the same time, there is no proof for learning, suggesting that within the timeframe of the analysis firms from the Lodz Voivodeship do not experience productivity gains due to international trade or investment. |
| Keywords: | international trade, foreign direct investment, internationalization, productivity, self-selection, learning |
| JEL: | F12 F23 D22 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ann:wpaper:7/2016&r=bec |
| By: | Békés, Gábor; Hornok, Cecília; Muraközy, Balázs |
| Abstract: | We use a unique cross-section survey of manufacturing firms from four European countries (France, Germany, Italy, Spain) linked with balance sheet data to study the relationship between key aspects of globalization and firm-level markups. The main results are: (i) Exporting is positively correlated with markups; (ii) Importing intermediate inputs and outsourcing are also positively correlated with markups; (iii) Firms with affiliates have higher markups than other firms, while simply membership in a group or being foreign-owned seems to be less important; (iv) Perceived competition from low-cost markets is negatively correlated with markups; (v) Higher quality production and innovation, especially if it results in IP, has a strong positive relationship with markups; (vi) While these variables are correlated, they are significant in a joint model including all four groups, and 'fully globalized' firms tend to charge around 100% higher markups than non-globalized firms. |
| Keywords: | markups,exporting,importing,FDI,innovation |
| JEL: | D22 D24 F14 L11 L60 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2044&r=bec |
| By: | Ioannis Asimakopoulos (Bank of Greece); Panagiotis K. Avramidis (ALBA Graduate Business School at the American College of Greece); Dimitris Malliaropulos (Bank of Greece, University of Piraeus); Nickolaos G. Travlos |
| Abstract: | Using a unique dataset of corporate loans of 13,070 Greek firms for the period 2008-2015 and an identification strategy based on the internal credit ratings of banks, we provide evidence that one out of six firms with non-performing loans are strategic defaulters. Furthermore, we investigate potential determinants of firms’ behavior by relating the probability of strategic default to a number of firm characteristics such as size, age, liquidity, profitability and collateral value. We provide evidence of a positive relationship of strategic default with outstanding debt and economic uncertainty and a negative relationship with the value of collateral. Also, profitability and collateral can be used to distinguish the strategic defaulters from the financially distressed defaulters. Finally, we find evidence that the relationship of strategic default risk with firm size and age has an inverse U-shape, i.e. strategic default is more likely among medium-sized firms compared to small and large firms and it is also more likely among middle-aged firms compared to new-founded and established firms. |
| Keywords: | Strategic default; Non-performing loans; Corporate loans; Leverage |
| JEL: | G01 G21 G32 C23 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:211&r=bec |
| By: | Kehoe, Timothy J. (Federal Reserve Bank of Minneapolis); Pujolas, Pau S. (McMaster University); Ruhl, Kim J. (New York University) |
| Abstract: | We show that a trade model with an exogenous set of heterogeneous firms with fixed operating costs has the same aggregate outcomes as a span-of-control model. Fixed costs in the heterogeneous-firm model are entrepreneurs' forgone wage in the span-of-control model. |
| Keywords: | Span-of-control model; Firm heterogeneity; Income distribution; International trade |
| JEL: | D31 D43 F12 |
| Date: | 2016–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:533&r=bec |
| By: | Thierry Mayer; Marc J. Melitz; Gianmarco I. P. Ottaviano |
| 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. |
| Keywords: | productivity, trade, competition |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1442&r=bec |
| By: | Timothy Kehoe (University of Minnesota); Sewon Hur (University of Pittsburgh); Kim Ruhl (New York University Stern School of Busi); Jose Asturias (Georgetown University) |
| Abstract: | In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. Distortions in the model include barriers to entry of firms, barriers to international trade, and barriers to contract enforcement. We find that a reform that reduces one of these distortions has different effects depending on the other distortions present. In particular, reforms to trade barriers and barriers to the entry of new firms are substitutable, as are reforms to contract enforcement and trade barriers. In contrast, reforms to contract enforcement and the barriers to entry are complementary. Finally, the optimal sequencing of reforms requires reforming trade barriers before contract enforcement. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:316&r=bec |
| By: | Peng, Lin; Roell, Ailsa; Tang, Hongfei |
| Abstract: | We examine, both theoretically and empirically, the determinants and performance impact of three measures of CEO incentives: pay-performance elasticity (PPE), semi-elasticity (PPSE), and sensitivity (PPS). Larger, more R&D intensive, and low-idiosyncratic risk firms have higher PPE and PPSE, resolving puzzling prior empirical findings based on PPS. Performance is generally hump-shaped in PPE and PPSE; shortfalls relative to predicted levels appear particularly detrimental to firm performance, suggesting that the average firm's incentives are at the low end of the optimal range. Overall, the results obtained with the PPE and PPSE measures accord better with economic intuition than those obtained using PPS. |
| Keywords: | Executive compensation; pay-for-performance elasticity |
| JEL: | G32 G34 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11417&r=bec |
| By: | Tim De Stefano; Richard Kneller; Jonathan Timmis |
| Abstract: | A recent literature has begun to recognise that ICT is heterogeneous and the effects from improving communication are distinct from those that improve the storage and processing of information. In this paper we use the arrival of a new communication technology, ADSL broadband internet, to study the effects of communication ICT on firm performance. To do so free from endogeneity bias, we construct instruments using the infrastructure underlying broadband internet - the pre-existing telephone network. We show that, after placing various restrictions on the sample, instruments based on the timing of ADSL broadband enablement and the cable distance to the local telephone exchange satisfy the conditions for instrument relevancy and validity for some types of ICT. We find in turn, that communication-ICT causally affects firm size (captured by either sales or employment) but not productivity. |
| Keywords: | ICT, firms, instrumental variable |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:not:notgep:16/11&r=bec |
| By: | Rocha, Vera (Copenhagen Business School); van Praag, Mirjam C. (Copenhagen Business School) |
| Abstract: | Both organizational and sociological approaches in entrepreneurship research highlight the importance of social context in shaping individual preferences for entrepreneurship. An influential contextual factor that has not been studied in entrepreneurship research is one's boss at work. Do entrepreneurial bosses contribute to their employees' decisions to become entrepreneurs themselves? Using Danish register data of newly founded firms and their entrepreneurs and employees between 2003 and 2012, and employing methods that allow causal inferences, we show that entrepreneurial bosses indeed affect their employees' future entrepreneurship choices, especially if both boss and employee are female. We investigate two alternative underlying mechanisms that may shape the (female) boss' influence on (female) workers' entrepreneurship decisions. Our results consistently suggest that entrepreneurial bosses may act as role models for the entrepreneurship activities of their employees, especially between pairs of female bosses and female employees. We do not find any evidence on female bosses acting as "queen bees" at the workplace. Female entrepreneurial bosses may, thus, act as a lever to reducing the gender gaps in entrepreneurship rates. |
| Keywords: | entrepreneurship, role models, gender gaps, female leadership |
| JEL: | L26 J24 J16 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10104&r=bec |
| By: | Lee, DongJoon; Choi, Kangsik; Nariu, Tatsuhiko |
| Abstract: | We investigate the endogenous choice of strategic variable (a price or a quantity) by downstream firms in a two-tier industry in which an upstream firm performs the R&D investment. We show that when the upstream firm offers either linear discriminatory or uniform input price, it is a dominant strategy for each downstream firm to choose Bertrand competition when two products become relatively differentiated. Second, from the viewpoint of downstream firms, we show that Bertrand competition is more efficient than Cournot competition in some boundaries of Cournot equilibrium, which implies that each downstream firm faces a prisoners' dilemma under the Cournot equilibrium. However, when the downstream firms involve in centralized bargaining with an upstream firm to determine the two-part tariff discriminatory (uniform) input pricing contracts, we find that choosing price (quantity) contract is the dominant strategy for downstream firms. In this case, we further show that the level of social welfare is the same regardless of the mode of product market competition (i.e., Bertrand or Cournot). |
| Keywords: | Endogenous Choice, Bertrand competition, Cournot competition, Upstream Investment, Bargaining |
| JEL: | D43 L13 M21 |
| Date: | 2016–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72752&r=bec |
| By: | Riccardo Crescenzi; Luisa Gagliardi; Simona Iammarino |
| Abstract: | This paper looks at foreign Multinational Enterprises (MNEs) investing in the UK and at their impact on the innovation performance of domestic firms active in their same sector. By employing data on Foreign Direct Investments matched with firm-level information the paper develops a direct measure of capital inflows at a three-digit industry level. In order to capture innovation in both manufacturing and services the paper relies on a broader proxy for firm innovativeness based on the Community Innovation Survey (CIS). The results suggest that domestic firms active in sectors with greater investments by MNEs show a stronger innovative performance. However, the heterogeneity across domestic firms in terms of internationalization of both their market engagement and ownership structure is the main driver of this effect. |
| Keywords: | multinational enterprises; innovation technological change; intra-industry knowledge diffusion; community innovation survey; United Kingdom |
| JEL: | F22 O33 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:62028&r=bec |