nep-bec New Economics Papers
on Business Economics
Issue of 2016‒08‒21
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Let's Try Next Door: Technical Barriers to Trade and Multi-destination Firms By Lionel Fontagné; Gianluca Orefice
  2. Allocating Effort and Talent in Professional Labor Markets By Derek Neal; Gadi Barlevy
  3. Sentiment-driven investment, non-linear corporate debt dynamics and co-existing business cycle regimes By Lojak, Benjamin
  4. Why does idiosyncratic risk increase with market risk? By Bartram, Söhnke M.; Brown, Gregory W.; Stulz, René M.
  5. Does female labor scarcity encourage innovation?: Evidence from China’s gender imbalance By Tan, Zhibo; Zhang, Xiaobo
  6. International Technology Diffusion via Goods Trade: Theory and Evidence from China By Eugene Beaulieu; Shan Wan
  7. Does Proximity to Foreign Invested Firms Stimulate Productivity Growth of Domestic Firms? Firm-level Evidence from Vietnam By Daniel Rais
  8. Product Mix and Firm Productivity Responses to Trade Competition By Thierry Mayer; Marc Melitz; Gianmarco Ottaviano
  9. A Pseudo-Panel Approach to Estimating Dynamic Effects of Road Infrastructure Provision on Firm Performance in a Developing Country Context By Samira Barzin; Sabine D'Costa; Daniel Graham
  10. Wage growth, urbanization, and firm characteristics: Evidence for Germany By Kelle, Markus
  11. The Lumpiness of German Exports and Imports of Goods By Joachim Wagner
  12. Firm performance and (Foreign) Debt Financing before and During the Crisis: Evidence from Firm-Level Data By Mateja GabrijelÄ iÄ; UroÅ¡ Herman; Andreja LenarÄ iÄ
  13. Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014) By Vasilev, Aleksandar

  1. By: Lionel Fontagné; Gianluca Orefice
    Abstract: Stringent Technical Barriers to Trade (TBT) are expected to drive exporters out of the markets imposing these hurdles. However their impact will vary, with some exporters being able to refocus on TBT-free markets. By matching a database of TBT measures raised as concerns at the WTO (Specific Trade Concerns -- STCs), with a firm-level panel of French exporters, we show the complex effects of restrictive TBT measures on the different margins of trade. We show that the negative effect of TBT on export participation is magnified for multi-destination firms, which can divert their exports towards TBT-free destinations. Moreover, we conduct aggregate level estimations to show that the effect of stringent TBTs in reducing export flows is magnified in more homogeneous sectors. Observing the shape of the firm distribution at sectoral level and the aggregate elasticity of export to trade cost, we shed light on the fixed component of the additional cost imposed by TBTs on exporters.
    Keywords: Non-tariff measures;TBT;Multi-destination Firms;Trade Margins
    JEL: F13 F14
    Date: 2016–07
  2. By: Derek Neal (University of Chicago); Gadi Barlevy (Federal Reserve Bank of Chicago)
    Abstract: In many professional service firms, new associates work long hours while competing in up-or-out promotion contests. Our model explores why these firms require young professionals to take on heavy work loads while facing significant risks of dismissal. We argue that the productivity of skilled partners in professional service firms, e.g. law, consulting, investment banking, public accounting, etc, is quite large relative to the productivity of their peers who are competent and experienced but not well-suited to the partner role. Therefore, these firms adopt personnel policies that facilitate the identi- fication of new partners. In our model, both heavy work loads and up-or-out rules serve this purpose. Market participants learn more about new workers who perform more tasks, and when firms replace experienced associates with new less productive workers, they gain the opportunity to identify talented professionals who will have long careers as partners. Both of these personnel practices are costly. However, when the gains from increasing the number of talented partners exceed these costs, firms employ both practices in tandem. We present evidence on life-cycle patterns of hours and earnings among lawyers that support our claim that both heavy work loads and up-or-out rules are screening mechanisms.
    Date: 2016
  3. By: Lojak, Benjamin
    Abstract: Recent evidence on the development of corporate debt suggests that firms' leverage ratios increased enormously during the past few decades. Taking into account firms financing concerns, the present work provides a dynamic disequilibrium model that is able to generate cyclical patterns of various key economic variables. One of the main features of the model is that a dynamic law governing the evolution of investor sentiment determines firms' investment through their sales expectations according to recurrent and endogenously determined waves of optimism and pessimism. The model further incorporates commercial banks providing loans to firms with the respective lending rate exhibiting a mark-up that changes endogenously with the evolution of the firms' indebtedness. It is shown that the model generates sentiment-driven business cycle fluctuations for two economic environments that exist contemporaneously: a "normal-" and "high-indebted" regime.
    Keywords: Minsky Cycles,De-Leveraging,Paradox of Debt,Financial Accelerator,Business Sentiment,Kaleckian Model,Disequilibrium Model
    Date: 2016
  4. By: Bartram, Söhnke M.; Brown, Gregory W.; Stulz, René M.
    Abstract: From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the strength of the relation, the relation is strong for the most liquid stocks. The relation has roots in fundamentals as higher market risk predicts greater idiosyncratic earnings volatility and as firm characteristics related to the ability of firms to adjust to higher uncertainty help explain the strength of the relation. Consistent with the view that growth options provide a hedge against macroeconomic uncertainty, we find evidence that the relation is weaker for firms with more growth options.
    Keywords: uncertainty,idiosyncratic risk,market risk,growth options,liquidity,limits to arbitrage
    JEL: G10 G11 G12
    Date: 2016
  5. By: Tan, Zhibo; Zhang, Xiaobo
    Abstract: Facing scarcity of a production factor, a firm can develop technologies to either substitute the scarce factor (price effect) or complement the more abundant factors (market size effect). Whether the market size effect or the price effect dominates largely depends on the elasticity of substitution among factors according to the theory of directed technical change. However, it is a great challenge to empirically test the theory because factor prices are often endogenously determined. In this paper, we use imbalanced sex ratios across Chinese provinces as a source of identification strategy to test how female labor scarcity affects corporate innovation based on the matched dataset of annual surveys of industrial firms in China and the national patent database. In regions with a large male population, female-intensive industries face more serious problems finding female workers than their male-intensive counterparts. We find that such female shortages have spurred firms in female-intensive industries to innovate more. The pattern is much more evident in industries with low substitution between female and male workers than in those with high substitution, consistent with the predictions of directed technical change theory.
    Keywords: CHINA, EAST ASIA, ASIA, prices, markets, labor, technology, innovation, gender, factor endowment, directed technical change, price effect, market size effect, elasticity of substitution, O31 Innovation and Invention: Processes and Incentives, O32 Management of Technological Innovation and R&, D, J21 Labor Force and Employment, Size, and Structure,
    Date: 2016
  6. By: Eugene Beaulieu (University of Calgary); Shan Wan (University of Calgary)
    Abstract: This paper develops a multi-product firm model of international trade with the endoge- nous decisions on export and import to study technology diffusion via goods trade. In our model, a firm’s productivity in a product is a combination of its general ability which applies to all the goods the firm produces and product expertise which applies only to a particular good. Within each firm, the decisions of export and import are based on product expertise. Technology diffuses via goods trade, therefore a firm can improve its productivity by reverse-engineering the imported advanced foreign prod- ucts. We use Chinese trade data to empirically analyze our theory. The results show that a firm will import the product in the category where it already has higher expertise, which is consistent with the theoretical prediction. We find that a firm’s productivity in a category gets improved when it imports in the same category, but only product expertise gets accumulated, not the firm ability.
    Date: 2016–08–12
  7. By: Daniel Rais
    Abstract: SECO Working Paper No. 10/2016 by Stephan Kyburz and Huong Quynh Nguyen
    Date: 2016–08–16
  8. By: Thierry Mayer; Marc Melitz; Gianmarco 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: Multiproduct Firms;Productivity;Trade
    JEL: F1
    Date: 2016–07
  9. By: Samira Barzin; Sabine D'Costa; Daniel Graham
    Abstract: We construct a pseudo-panel of Colombian firms based on the Colombian Annual Manufacturing Survey to study the effects of transportation infrastructure on firm performance in a developing country. Our findings report an output elasticity with respect to road infrastructure of 0.132 to 0.146 across the specifications, which confirms our initial hypothesis that roads are an important driver for private sector output growth. The fact that our results are larger than those reported in the literature for developed countries could suggest that the role of transportation infrastructure is relatively more important for the economy of developing countries. Furthermore, our findings reveal that there exists a time lag with which firms’ productions react to changes in the road stock. We interpret these findings as firms requiring time to adjust their production processes to road improvements of at least a year. We furthermore identify that the effect of road infrastructure is particularly large for those manufacturing industries that are capital-intensive and produce heavy goods. Further robustness tests reveal that our results are not driven by the possibility of agglomeration economies or the chosen measurement of transportation infrastructure. We additionally provide Monte Carlo simulations to provide support for the validity of pseudo-panels in the context of firm-level data.
    Keywords: Infrastructure; Roads; Economic Development; Pseudo-Panels; Monte Carlo Simulations; Latin America; Colombia
    JEL: O18 O14 R42 C15
    Date: 2016–08
  10. By: Kelle, Markus
    Abstract: I use German administrative data for 2001-2010 to analyse the impact of urbanization and firm characteristics on wage growth of workers. I find a statistically highly significant higher within-job wage growth rate for workers in counties with a higher population density. This provides evidence that workers' productivity growth is higher in denser regions, which could be explained by faster learning or human capital accumulation of workers. However, this effect turns insignificant once I account for the number of employees of the workers' firms, the share of highly educated workers in the firm and wagelevel firm fixed effects. This indicates that such a learning effect may occur rather within firms than between workers in a region. Beyond this, the paper presents evidence that workers in denser areas also benefit more from job changes within counties. One reason for that is that workers in denser regions match more often with high-wage firms. Furthermore, I find evidence that also the efficiency of the worker-firm matches is higher in denser areas.
    Abstract: Ich verwende deutsche administrative Arbeitsmarktdaten für die Jahre 2001 bis 2010, um den Einfluss von Urbanisierung und Firmeneigenschaften auf das Lohnwachstum von Arbeitern zu analysieren. Hierbei identifiziere ich ein signifikant höheres Lohnwachstum innerhalb des gleichen Jobs für Arbeiter in Regionen mit einer höheren Bevölkerungsdichte. Dies stellt Evidenz dafür dar, dass das Produktivitätswachstum für Arbeiter in dichter besiedelten Gebieten höher ist, was durch ein schnelleres Lernen oder Akkumulieren von Humankapital erklärt werden kann. Jedoch wird dieser Effekt insignifikant, wenn ich die Anzahl der Arbeitnehmer pro Firma, den Anteil der Arbeiter mit hohem Bildungsgrad in der Firma und "Fixed Effects" für das Lohnniveau der Firma berücksichtige. Dies deutet daraufhin, dass ein solcher Lerneffekt eher innerhalb von Firmen auftritt anstatt zwischen Arbeitern innerhalb einer Region. Darüber hinaus zeigt das Papier Evidenz dafür, dass Arbeiter in dichter besiedelten Gebieten ebenso mehr von Jobwechseln innerhalb eines Kreises profitieren. Ein Grund hierfür ist, dass Arbeiter in urbaneren Regionen häufiger zu Hochlohnfirmen wechseln. Des Weiteren finde ich Evidenz dafür, dass die Effizienz der Arbeiter-Firma-Paare in dichter besiedelten Gebieten höher ist.
    Keywords: wage growth,learning,urbanization,firm characteristics
    JEL: R11 R23 J24
    Date: 2016
  11. By: Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: This paper looks at a hitherto neglected extensive margin of international trade by investigating for the first time the frequency at which German exporters and importers trade a given good with a given country. Imports and exports show a high degree of lumpiness. In a given year about half of all firm-good-country combinations are recorded only once or twice for trade with EU-countries, and this is the case for more than 60 percent of all firm-goodcountry combinations in trade with non-EU countries. The frequency of recorded transactions tends to decline with an increase in the number of transactions per year. This is in accordance with the presence of per-shipment fixed costs that provide an incentive for trading firms to engage in cross-border transactions infrequently. Empirical models show that for Germany the frequency of transactions at the firm-good-country level tends to decrease with an increase in per-shipment costs when unobserved firm and goods characteristics are controlled for.
    Keywords: Lumpiness of trade, imports, exports, Germany
    JEL: F14
    Date: 2016–04
  12. By: Mateja GabrijelÄ iÄ (Bank of Slovenia); UroÅ¡ Herman (GSEFM, Goethe University Frankfurt); Andreja LenarÄ iÄ (European Stability Mechanism)
    Abstract: We study the effects of financial leverage and foreign financing on firm performance before and during the recent crisis, using a large panel of Slovenian companies. We find a significant negative impact of leverage on firm performance, even when we explicitly control for the reverse causality between the two variables. The negative effect, albeit weaker, persists also in the crisis period. Firms with some foreign debt performed better on average than firms relying only on domestic financing. At the same time, they suffered a stronger decrease in performance if their total leverage increased. Moreover, when we explicitly control for the amount of foreign financing, we find that it has a positive and highly significant effect on firm performance. The significant positive effect of foreign financing in the pre-crisis period seems to be entirely driven by privately owned firms, while the effects are negative for the state owned companies. During the crisis, the effects are positive but insignificant for both ownership types. Finally, when comparing domestic and foreign owned firms, we see no substantial variation in the coefficients.
    Keywords: Leverage, foreign leverage, firm performance, instrumental variable, panel data, crisis
    JEL: F34 G15 G24 H63
    Date: 2016–07
  13. By: Vasilev, Aleksandar
    Abstract: This paper focuses on explaining the economic fluctuations in Bulgaria after the introduction of the currency board arrangement in 1997, the period of macroeconomic stability that ensued, the EU accession, and the episode of the recent global financial crisis. This paper follows Chari et al. (2002) and performs business cycle accounting (BCA) for Bulgaria during the period 1999-2014. As in Cavalcanti (2007), who studies the Portuguese business cycles, most of the volatility in output per capita in Bulgaria over the period is due to variations in the efficiency and labor wedges.
    Keywords: Business Cycle Accounting,Bulgarian economy,efficiency and labor wedges
    JEL: E32 E37 O47
    Date: 2016

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