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on Business Economics |
| By: | Chen Yeh |
| Abstract: | This paper quantitatively assesses whether firm-specific shocks can drive the U.S. business cycle. Firm-specific shocks to the largest firms can directly contribute to aggregate fluctuations whenever the firm size distribution is fat-tailed giving rise to the granular hypothesis. I use a novel, comprehensive data set compiled from administrative sources that contains the universe of firms and trade transactions, and find that the granular hypothesis accounts at most for 16 percent of the variation in aggregate sales growth. This is about half of that found by previous studies that imposed Gibrat’s law where all firms are equally volatile regardless of their size. Using the full distribution of growth rates among U.S. firms, I find robust evidence of a negative relationship between firm-level volatility and size, i.e. the size-variance relationship. The largest firms (whose shocks drive granularity) are the least volatile under the size-variance relationship, thus their influence on aggregates is mitigated. I show that by taking this relationship into account the effect of firm-specific shocks on observed macroeconomic volatility is substantially reduced. I then investigate several plausible mechanisms that could explain the negative sizevariance relationship. After empirically ruling out some of them, I suggest a “market power” channel in which large firms face smaller price elasticities and therefore respond less to a givensized productivity shock than small firms do. I provide direct evidence for this mechanism by estimating demand elasticities among U.S. manufactures. Lastly, I construct an analytically tractable framework that is consistent with several empirical regularities related to firm size. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:17-23&r=bec |
| By: | Oriana Bandiera; Stephen Hansen; Andrea Prat; Raffaella Sadun |
| Abstract: | We measure the behavior of 1,114 CEOs in Brazil, France, Germany, India, UK and US using a new methodology that combines (i) data on every activity the CEOs undertake during one workweek and (ii) a machine learning algorithm that projects these data onto scalar CEO behavior indices. Low values of the index are associated with plant visits, and one-on-one meetings with production or suppliers, while high values correlate with meetings with high-level C-suite executives, and several functions together, both from inside and outside the firm. We use these data to study the correlation between CEO behavior and firm performance within the framework of a firm-CEO assignment model. We show results consistent with significant firm-CEO assignment frictions, which appear to be more severe in lower-income regions. The productivity loss generated by inefficient assignment is equal to 13% of the productivity gap between high- and low-income countries in our sample. |
| JEL: | J22 J24 M12 O4 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23248&r=bec |
| By: | John R. Graham; Campbell R. Harvey; Jillian Popadak; Shivaram Rajgopal |
| Abstract: | Does corporate culture matter? Can differences in corporate culture explain why similar firms diverge with one succeeding and the other failing? To answer these questions, we use a novel survey and interview-based analysis of 1,348 North American firms. Over half of senior executives believe that corporate culture is a top-three driver of firm value and 92% believe that improving their culture would increase their firm's value. Surprisingly, only 16% believe their culture is where it should be. Executives link culture to ethical choices (compliance, short-termism), innovation (creativity, taking appropriate risk), and value creation (productivity, acquisition premia). We assess these links within a framework that implies cultural effectiveness depends on interactions between cultural values, norms, and formal institutions. Our evidence suggests that cultural norms are as important as stated values in achieving success. |
| JEL: | D23 G3 G30 K22 M14 O16 Z1 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23255&r=bec |
| By: | Zoltan J. Acs; Pontus Braunerhjelm; Charlie Karlsson |
| Abstract: | Professor Philippe Aghion is the 2016 recipient of the Global Award for Entrepreneurship Research, consisting of 100,000 Euros and a statuette designed by the internationally renowned Swedish sculptor Carl Milles. He is one of the most influential researchers worldwide in economics in the last couple of decades. His research has advanced our understanding of the relationship between firm-level innovation, entry and exit on the one hand, and productivity and growth on the other. Aghion has thus accomplished to bridge theoretical macroeconomic growth models with a more complete and consistent microeconomic setting. He is one of the founding fathers of the pioneering and original contribution referred to as Schumpeterian growth theory. Philippe Aghion has not only contributed with more sophisticated theoretical models, but also provided empirical evidence regarding the importance of entrepreneurial endeavours for societal prosperity, thereby initiating a more nuanced policy discussion concerning the interdependencies between entrepreneurship, competition, wealth and growth. |
| Keywords: | global award; entrepreneurship; economic growth; innovation; firm entry; finance; regulation |
| JEL: | D02 D86 G30 L20 L50 O30 O40 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:69852&r=bec |
| By: | Sara Moreira |
| Abstract: | This paper examines how the state of the economy when businesses begin operations affects their size and performance over the lifecycle. Using micro-level data that covers the entire universe of businesses operating in the U.S. since the late 1970s, I provide new evidence that businesses born in downturns start on a smaller scale and remain smaller over their entire lifecycle. In fact, I find no evidence that these differences attenuate even long after entry. Using new data on the productivity and composition of startup businesses, I show that this persistence is related to selection at entry and demand-side channels. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:17-29&r=bec |
| By: | ANNE MARIE KNOTT; CARL VIEREGGER |
| Abstract: | Since Schumpeter, there has been a lively debate regarding the optimal firm size for innovation. Empirical results have settled into a puzzle: R&D spending increasing with scale, while R&D productivity decreases with scale. Thus large firms appear irrational. We propose and test two alternative resolutions of the puzzle: 1) that it arises from measurement problems, and 2) that firm size endogenously drives R&D strategy, and that the returns to R&D strategies depend on scale. To test both propositions we use recently available NSF BRDIS survey data of firms R&D practices (strategies) as well as a broader measure of R&D productivity. Using the broader measure, we find that both R&D spending and R&D productivity increase with scale—thus offering one resolution to the puzzle. We further find that while large firms and small firms differ in the types of R&D they conduct, there is no type whose returns decrease in scale—there are merely types for which the small firm penalty is less severe. Thus Schumpeter appears to be correct--large firms are the major engine of growth, they both spend more in aggregate than small firms, and are more productive with that spending. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:16-20r&r=bec |
| By: | Daniel Schäfer; Carl Singleton |
| Abstract: | Using a dataset covering a large sample of employees and their mostly very large employers, we study the dynamics of British wage inequality over the past two decades. Contrary to other studies, we find little evidence that recent increases in inequality have been driven by differences in the average wages paid by firms. Instead greater dispersion within firms can account for the majority of changes to the wage distribution. After controlling for the changing occupational content of employee wages, the role of average firm residual differences is approximately zero; the modestly increasing trend in between-firm wage inequality is explained by a combination of changes in between-occupation inequality and the occupational specialisation of firms. It is possible that previous studies, which assign some of the importance of changes in the between-firm component to industry, have misrepresented a significant role for occupations. These results are robust across measures of hourly, weekly and annual wages. |
| Keywords: | wage inequality, within-firm inequality, occupational wage premium |
| JEL: | E24 J31 |
| Date: | 2017–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:edn:esedps:277&r=bec |
| By: | Liang, H.; Renneboog, Luc (Tilburg University, Center For Economic Research) |
| Abstract: | Do corporate donations enhance shareholder wealth or reflect agency problems? We address this question for a global sample of firms whereby we distinguish between charitable and political donations, as well as between donations in cash and in kind. We find that charitable donations are positively related to financial performance and firm value, which is consistent with the value-enhancement hypothesis. This positive effect on firm value is stronger for cash than in-kind donations. In contrast, political donations do not appear to enhance shareholder value, but rather tend to reflect agency problems, as they are higher for firms with poor internal corporate governance and strong managerial entrenchment. We address endogeneity concerns by using peer firms’ donations as an instrument in a two-stage least squares (2SLS) setting and by conducting a difference-in-difference analysis around a general election. |
| Keywords: | Corporate social responsibility; corporate philanthropy; charitable donations; political donations; corporate foundation; corporate governance; firm value |
| JEL: | G3 I3 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:d118849c-1502-442b-a66e-5d3a608f7c5e&r=bec |
| By: | Masaru Inaba; Keisuke Otsu |
| Abstract: | We study the features of regional business cycles and growth in Japan. We find evidence of unconditional convergence over the 1955-2008 period. For the 1975-2008 period, we find evidence of convergence conditional on TFP gap, population growth, private investment rate and TFP growth. We also find that the consumption-output correlation puzzle exists, which implies that the idiosyncratic income shocks are not shared among prefectures and regions. Our analysis implies that frictions in financial markets are responsible for the low consumption risk-sharing among prefectures. |
| Keywords: | Japanese Economy; Regional Convergence; Regional Business Cycle Synchronization |
| JEL: | E01 E32 O47 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1705&r=bec |
| By: | Juliane Begenau; Berardino Palazzo |
| Abstract: | Among stock market entrants, more firms over time are R&D–intensive with initially lower profitability but higher growth potential. This sample-selection effect determines the secular trend in U.S. public firms’ cash holdings. A stylized firm industry model allows us to analyze two competing changes to the selection mechanism: a change in industry composition and a shift toward less profitable R&D–firms. The latter is key to generating higher cash ratios at IPO, necessary for the secular increase, whereas the former mechanism amplifies this effect. The data confirm the prominent role played by selection, and corroborate the model’s predictions. |
| JEL: | E3 G1 G3 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23249&r=bec |
| By: | Luisa Gagliardi (London School of Economics and Political Science); Simona Iammarino (London School of Economics and Political Science) |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:img:wpaper:37&r=bec |
| By: | Hie Joo Ahn; Ling Shao |
| Abstract: | This paper provides new evidence for cyclicality in the job-search effort of employed workers, on-the-job search (OJS) intensity, in the United States using American Time Use Survey and various cyclical indicators. We find that OJS intensity is countercyclical along both the extensive and intensive margins, with the countercyclicality of extensive margin stronger than the other. An increase in the layoffs rate and the deterioration in expectations about future personal financial situation are the primary factors that raise OJS intensity. Our findings suggest that the precautionary motive in the job search is a crucial driver of the countercyclicality in OJS intensity. |
| Keywords: | On-the-job search ; Business cycles ; Labor flows ; Time use |
| JEL: | E24 E32 J22 J63 |
| Date: | 2017–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-25&r=bec |