nep-bec New Economics Papers
on Business Economics
Issue of 2017‒06‒04
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. “Internet and enterprise productivity:evidence from Latin America” By Juan Jung; Enrique López-Bazo; Matteo Grazzi
  2. Resale Price Maintenance with Strategic Customers By Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
  3. Disentangling the effect of private and public cash flows on firm value By Scherrer, Cristina Mabel; Fernandes, Marcelo
  4. Wage Bargaining Regimes and Firms' Adjustments to the Great Recession By Ronchi, Maddalena; di Mauro, Filippo
  5. Market Thickness, Input-Output Linkages, and Agglomeration By MIYAUCHI Yuhei; MIYAKAWA Daisuke
  6. The Role of Transfer Prices in Profit-Shifting by U.S. Multinational Firms : Evidence from the 2004 Homeland Investment Act By Aaron Flaaen
  7. The Double-Edged Sword of Global Integration: Robustness, Fragility & Contagion in the International Firm Network By Grant, Everett; Yung, Julieta
  8. When Japanese Banks Become Pure Creditors: Effects of declining shareholding by banks on bank lending and firms' risk taking By ONO Arito; SUZUKI Katsushi; UESUGI Iichiro
  9. Manufacturing productivity in China: Deconstructing the role of Agglomeration By Chen, Yang; He, Ming; Rudkin, Simon
  10. Animal Spirits, Financial Markets and Aggregate Instability By Wei Dai; Mark Weder; Bo Zhang
  11. Mandatory IFRS adoption in Brazil and firm value By Sampaio, Joelson Oliveira; Gallucci Netto, Humberto; Silva, Vinícius Augusto Brunassi
  12. The Degree of Import Price Rigidity with Respect to Exchange Rate Fluctuations and Importing Firm Characteristics in Russian Economy By Pleskachev, Yury; Ponomarev, Yury

  1. By: Juan Jung (AQR-IREA, University of Barcelona); Enrique López-Bazo (AQR-IREA, University of Barcelona); Matteo Grazzi (Inter-American Development Bank)
    Abstract: This paper tests three hypotheses regarding the link between internet and firm productivity: i) internet adoption and use constitute a source of productivity growth for firms in Latin America, ii) the intensity of its use also matters, and iii) the link between the new technologies and productivity levels is not uniform over the whole productivity distribution. The evidence in this paper fills the gap of scarce and fragmented literature focused on Latin America, and is aligned with previous research for more developed regions which has generally recognized that Information and Communication Technologies (ICTs) have radically changed how modern business are conducted, benefitting firm performances through several channels, such as increasing the efficiency of internal processes, expanding market reach or increasing innovation.Our findings suggest that low-medium productive firms benefit more from an expansion in internet adoption and use, in comparison with the most productive ones. If this evidence is supposed to reflect long-term effects, then public policies oriented to massify internet adoption and promote internet use intensively will surely contribute to reduce inequalities of enterprise’s productivity levels, promoting a level playing field among Latin American firms, something especially relevant for the most unequal region of the world.
    Keywords: ICT, Internet, Productivity, firms, Latin America JEL classification: D22, O31, O33, O54
    Date: 2017–05
  2. By: Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
    Abstract: We consider a decentralized supply chain (DSC) under resale price maintenance (RPM)selling a limited-lifetime product to forward-looking customers with heterogeneous valuations. When customers do not know the inventory level, double marginalization in DSC leads to a higher profit and lower aggregate welfare than in centralized supply chain (CSC). When customers know the inventory, DSC coincides with CSC. Thus, overestimation of customer awareness may lead to overcentralization of supply chains with profit loss comparable with the loss from strategic customers. The case with unknown inventory is extended to an arbitrary number of retailers with inventory-independent and inventory-dependent demand. In both cases, the manufacturer, by setting a higher wholesale price, mitigates the inventory-increasing effect of competition and reaches the same profit as with a single retailer. The high viability of RPM as a strategic-behavior-mitigating tool may serve as another explanation of why manufacturers may prefer DSC with RPM to a vertically integrated firm.
    Keywords: limited-lifetime product, strategic customers, limited information, aggregate welfare, oligopoly
    JEL: D9 L13 L42
    Date: 2017–05–27
  3. By: Scherrer, Cristina Mabel; Fernandes, Marcelo
    Abstract: This paper presents a simple model for dual-class stock shares, in which common shareholders receive both public and private cash flows (i.e. dividends and any private benefit of holding voting rights) and preferred shareholders only receive public cash flows (i.e. dividends). The dual-class premium is driven not only by the firm's ability to generate cash flows, but also by voting rights. We isolate these two effects in order to identify the role of voting rights on equity-holders' wealth. In particular, we employ a cointegrated VAR model to retrieve the impact of the voting rights value on cash flow rights. We finnd a negative relation between the value of the voting right and the preferred shareholders' wealth for Brazilian cross- listed firms. In addition, we examine the connection between the voting right value and market and firm specific risks.
    Date: 2017–03–07
  4. By: Ronchi, Maddalena; di Mauro, Filippo
    Abstract: The paper aims at investigating to what extent wage negotiation set-ups have shaped up firms’ response to the Great Recession, taking a firm-level cross-country perspective. We contribute to the literature by building a new micro-distributed database which merges data related to wage bargaining institutions (Wage Dynamic Network, WDN) with data on firm productivity and other relevant firm characteristics (CompNet). We use the database to study how firms reacted to the Great Recession in terms of variation in profits, wages, and employment. The paper shows that, in line with the theoretical predictions, centralized bargaining systems – as opposed to decentralized/firm level based ones – were accompanied by stronger downward wage rigidity, as well as cuts in employment and profits.
    Keywords: productivity,wage bargaining,firm level analysis,global financial crisis
    JEL: D22 D61 J30 J50
    Date: 2017
  5. By: MIYAUCHI Yuhei; MIYAKAWA Daisuke
    Abstract: Existing literature documents strong empirical relationships between input-output linkages and geographic concentration of industries. This paper empirically assesses one micro-foundation of this phenomenon: geographic concentration of firms reduces the matching friction of firm-to-firm trade (i.e., thick-market externality). Using a panel of over one million firms in Japan with dynamic supply-chain linkage information, we find that (1) firms have more suppliers and customers in denser areas on average, and (2) when a supplier exits the market for unexpected reasons (identified by the reported reasons of bankruptcy), firms recover alternative suppliers more in thicker supplier markets. These two pieces of evidence suggest the importance of thick-market externality of firm-to-firm trade as a mechanism of agglomeration.
    Date: 2017–05
  6. By: Aaron Flaaen
    Abstract: Using unique transaction-level microdata, this paper documents profit-shifting behavior by U.S. multinational firms via the strategic transfer pricing of intra-firm trade. A simple model reveals how differences in tax rates, both the corporate tax rates across countries and the dividend repatriation tax rate over time, affect the worldwide profit-maximizing transfer-prices set by firms for intra-firm exports and imports. I test the predictions of the model in the context of the 2004 Homeland Investment Act (HIA), a one-time tax repatriation holiday which generated a discreet change in the incentives for U.S. firms to shift profits to low-tax jurisdictions. Matching individual trade transactions by firm, product, country, mode-of-transport, and month across arms-length and related-party transactions (following Bernard, Jensen, and Schott (2006) ) yields a measure of the transfer-price wedge at a point in time. A difference-in-difference strategy reveals that this wedge responds as predicted by the model: In the period following passage of the HIA, the export transfer price wedge increased in low-tax relative to high-tax countries, while the import transfer price wedge exhibited the opposite behavior. Consistent with the form of tax avoidance known as "round-tripping, the results imply $6 billion USD of under-reported U.S. exports, nearly $7 billion USD of over-reported U.S. imports, and roughly $2 billion USD in foregone U.S. corporate tax receipts.
    Keywords: Corporate Taxes ; Intra-firm Trade ; Multinational firms ; Profit-Shifting ; Transfer Prices
    JEL: F23 H26 F14 H25 H32
    Date: 2017–05
  7. By: Grant, Everett (Federal Reserve Bank of Dallas); Yung, Julieta (Federal Reserve Bank of Dallas)
    Abstract: We estimate global inter-firm networks across all major industries from 1981 through 2016 and provide the first empirical tests for both robust (beneficial) and fragile (harmful) network behavior, relating firms' health with global integration. More connected firms are less likely to be in distress and have higher profit growth and equity returns, but are also more exposed to direct contagion from distressed neighboring firms and network level crises. Our analysis reveals the centrality of finance in the international firm network and increased globalization, with greater potential for crises to spread globally when they do occur.
    JEL: C3 F36 F61 G15
    Date: 2017–05–01
  8. By: ONO Arito; SUZUKI Katsushi; UESUGI Iichiro
    Abstract: Utilizing the regulatory change relating to banks' shareholding in Japan as an instrument, this study examines the causal effects of declining shareholding by banks on bank lending and firms' risk taking. Banks may hold equity claims over client firms for either of the following two reasons: (i) gaining a competitive advantage by exploiting complementarity between shareholding and lending activities, and (ii) mitigating shareholder-creditor conflict. Exogenous reduction in a bank's shareholding would then impair the competitiveness of the bank's lending activities and aggravate the risk-shifting behavior of client firms. Using a firm-bank matched dataset of Japan's listed firms during the period 2001-2006, we empirically tested several hypotheses and obtain the following findings. First, a bank's removal from the list of major shareholders of a client firm (extensive margin) and the reduction in the ratio of the bank's shareholding to the firm's total shares on issue (intensive margin) decreases the bank's share of the firm's loans. Second, a reduction in the extensive margin of a bank's shareholding increases the volatility of the client firm's return on assets and reduces its Sharpe ratio. However, we do not find the same effect when a bank reduces the intensive margin of its shareholding.
    Date: 2017–05
  9. By: Chen, Yang (Division of Economics, Xi'an Jiaotong-Liverpool University); He, Ming (Division of Economics, Xi'an Jiaotong-Liverpool University); Rudkin, Simon (SHU-UTS SILC Business School, University of Shanghai)
    Abstract: Economists talk of agglomeration bene ting rms but little work has sought to understand the impact various consequences of close location of rms has on productivity. Using unconditional quantile regression for the rst time in productivity we revisit the Chinese Industry Survey, from 1999 to 2007, to ask (a) how does spatial competition, local diversity, population density and regional specialisation impact across the productivity distribution, and (b) how have these effects changed through China's opening up to foreign direct investment. High productivity firms bene t more from specialist agglomerations, monopoly and can take larger advantage of market size compared to those which are less productive.
    Keywords: Unconditional Quantile Regression, Manufacturing Productivity, China, Agglomeration.
    Date: 2017–05–24
  10. By: Wei Dai (School of Economics, University of Adelaide); Mark Weder (School of Economics, University of Adelaide); Bo Zhang (School of Economics, University of Adelaide)
    Abstract: People's animal spirits are a significant driver behind the fluctuations of the U.S. business cycle. This insight is demonstrated within an estimated artificial economy with financial market frictions. Animal spirits shocks account for around 40 percent of output fluctuations over the period from 1955 to 2014. Financial friction and technology shocks are considerably less important with best point estimates for both near 20 percent. We also find that the Great Recession, for the most parts, was caused by adverse shocks to expectations.
    Keywords: Endogenous financial frictions, indeterminacy, animal spirits, business cycles, Bayesian estimation
    JEL: E32 E44
    Date: 2017–05
  11. By: Sampaio, Joelson Oliveira; Gallucci Netto, Humberto; Silva, Vinícius Augusto Brunassi
    Abstract: Using diff-in-diff approaches and the propensity-score matching, this study focuses on firm-level Tobin´s q and Market-to-book outcomes for Brazilian firms who in 2008 were required by Law 11.638/07 to adopt the full International Financial Reporting Standards (IFRS) by 2010. Brazil’s tier-system of corporate governance standards for publicly-traded firms, its uniquely wholesale adoption of the IFRS, and the previously considerable gap between its national GAAP and IFRS readily lend the scenario to research, which thus far finds small or inconsistent results when focused on IFRS adoption-related outcomes in Europe and China. However, while these features recommend the transitioned Brazilian equity market to analysis, additional unique features, such as its small population size and its limited historical data -- of varied quality – increase the challenge in selecting a suitable empirical methodology. Using quarterly data from 2006-2011, control firms in the Nivel II and Novo Mercado tiers of Bovespa which already complied with higher quality accounting standards are matched to treatment firms in the Regular and Nivel I tiers with similar averaged values of size and sector. Our results suggest that there is a positive impact on Tobin´s q and Market-to-book for firms who are forced to adopt IFRS in Brazil. We can observe the same results when we consider all variables winsorized at 5% level. We also find a positive relation between the firm value (measured by Tobin´s q and Market-to-book) and net income. Firms with higher net income are more likely to have higher Tobin´s q and Market-tobook. In an opposite way, we find a negative relation among firm value, size, Ebit-to-sales, sales growth and PPE-to-sales. All results are statistically significant at 1% level. '
    Date: 2017–03–07
  12. By: Pleskachev, Yury (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Ponomarev, Yury (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The main purpose of the research study is assessment of the degree of import price rigidity with respect to exchange rate fluctuations and importing firm characteristics in Russian economy. Exchange rate pass-through in economy starts with the import prices. Empirical results show significant difference in import price rigidity depending on firms and goods characteristics. Using micro data on import to Russia from 2002 to 2015 allowed obtaining estimates that were not reported in the previous literature. This paper documents dependence of import price rigidity with respect to the exchange rate fluctuations form the degree of processing and firm characteristics. Import price rigidity is higher for manufactured products elaborately transformed, for goods, denominated in home currency, for goods with lower frequency of price changes and for the firms with higher market share. Empirical estimates based on micro data also allowed to document the dependence of import price rigidity from the economic sector and compare results with international literature.
    Date: 2017–03

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