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on Business Economics |
| By: | Anthony Savagar |
| Abstract: | I analyze two opposing effects of firm dynamics on productivity over the business cycle. Consider net exit, on the one hand it reallocates resources to incumbents whose productivity improves through scale economies, on the other hand it reduces the competitive pressure incumbents face which depresses productivity. Contrarily net entry strengthens competition, thus increasing productivity, but worsens incumbents' scale economies, thus decreasing productivity. I outline a theory that focuses on two industrial features (1) slow firm entry/exit and (2) firm pricing that depends on the number of competitors. In this environment a negative shock strikes incumbents due to slow exit responses. This weakens their scale thus worsening productivity but the effect recedes as exit occurs which reallocates resources to incumbents. However, the remaining firms face fewer competitors and thus charge higher markups which damages productivity. I analyze this trade-off between productivity improving resource reallocation and productivity degrading market power, by developing a continuous time, analytically tractable DGE model of endogenous firm entry/exit and endogenous markups. |
| Keywords: | Endogenous markups; Entry; Endogenous Productivity; Imperfect product markets; dynamical systems |
| JEL: | E32 D21 D43 L13 C62 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1713&r=bec |
| By: | Emmanuele Bobbio (Bank of Italy) |
| Abstract: | Italy's growth performance has been lacklustre in the last two decades. The economy has low R&D intensity; firms are smaller and less likely to grow or exit than firms in other advanced countries; the shadow economy is large. I show how these features arise simultaneously in a Schumpeterian growth model with heterogeneous firms where the tax auditing probability increases with firm size. Tax evasion confers a cost advantage over competitors. In equilibrium, small firms invest less in innovation because growing entails a (shadow) cost of fiscal regularization. Unfair competition forces other firms to lower the mark-up they charge for their new products, reducing the incentive to innovate. Market selection is hampered, further lowering the aggregate growth rate along the extensive margin. I calibrate the model on Italian firm-level data for the period 1995-2006 and find that enforcing taxes would have increased the long-run growth rate from 0.9% to 1.1%. The market share of high type firms would have been 8 percentage points higher and average firm size 25% higher. Also, I find that lowering the tax burden can have a significant impact on growth when the shadow economy is large, while the effect is negligible when taxes are enforced. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:683&r=bec |
| By: | Florian Gerth |
| Abstract: | This paper argues that the fall and persistently low level of UK Total Factor Productivity (TFP) following the Great Recession was caused by the turnover (entry and exit) of firms, rather than by resource misallocation between firms within industries. I conduct a misallocation exercise employing the Hsieh and Klenow (2009) and the Olley and Pakes (1996) methods using the FAME microlevel dataset that contains more than 9 million firms within the UK over the 2006 - 2014 period. The main findings are that, first, service sector TFP drops far more than manufacturing TFP and therefore drives the fall and long-lasting depression in aggregate productivity. Second, within-industry misallocation cannot account for the drop in TFP. Third, the entry and exit of firms both contribute to the decline in aggregate TFP while the entry of firms has a larger negative effect on TFP than the exit of firms. And fourth, the pattern of within-industry misallocation and firm dynamics is the same for the manufacturing and the service sector. |
| Keywords: | Great Recession in the UK; Factor Misallocation; FAME dataset |
| JEL: | D24 E13 E32 L11 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1714&r=bec |
| By: | Jenny X. Lin; William Lincoln |
| Abstract: | Do countries that improve their protection of intellectual property rights gain access to new product varieties from technologically advanced countries? We build the first comprehensive matched firm level data set on exports and patents using confidential microdata from the US Census to address this question. Across several different estimation approaches we find evidence that these protections affect where US firms export. |
| Keywords: | trade, innovation, intellectual property rights, patents |
| JEL: | F13 F14 M21 O31 O3 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:17-51&r=bec |
| By: | Herskovic, Bernard; Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn |
| Abstract: | Firm volatilities co-move strongly over time, and their common factor is the dispersion of the economy-wide firm size distribution. In the cross section, smaller firms and firms with a more concentrated customer base display higher volatility. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions. We propose and estimate a simple network model of firm volatility in which shocks to customers influence their suppliers. Larger suppliers have more customers and the strength of a customer-supplier link depends on the size of the customer. The model produces distributions of firm volatility, size, and customer concentration that are consistent with the data. |
| Keywords: | aggregate volatility; firm size distribution; Firm volatility; granularity; networks |
| JEL: | E20 E3 G1 L14 L25 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12284&r=bec |
| By: | Ariu, Andrea; Biewen, Elena; Blank, Sven; Gaulier, Guillaume; González, María Jesus; Meinen, Philipp; Mirza, Daniel; Martín, Cesar; Tello, Patry |
| Abstract: | This paper uses detailed micro data on service exports at the firm-destination-service level to analyse the role of firm heterogeneity in shaping aggregate service exports in Belgium, France, Germany and Spain from 2003 to 2007. We decompose the level and the growth of aggregate service exports into different trade margins paying special attention to firm heterogeneity within countries. We find that the weak export growth of France is at least partly due to poor performance by small exporters. By contrast, small exporters are the most dynamic contributors to the aggregate exports of Belgium, Germany and Spain. Our results highlight the importance of firm heterogeneity in understanding aggregate export growth. JEL Classification: F14 |
| Keywords: | cross-country micro data study, firm heterogeneity, service exports |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172097&r=bec |
| By: | Stephen P. Ferris; Jan Hanousek; Anastasiya Shamshur; Jiri Tresl |
| Abstract: | Using a large sample of U.S. firms over the period, 1984 to 2013, this study examines the relation between market and book leverage ratios. Unlike Welch (2004) who contends that changes in market leverage do not induce adjustments in book leverage, we find an asymmetric effect. That is, firms adjust their book leverage relative to market leverage only when the changes in market leverage are due to increases in the value of the firm’s equity. No adjustment is observed when firm equity values decrease. We observe a number of interesting differences between those firms that make large and small capital structure adjustments in response to changing equity prices. Our results are consistent with Barclay, Morellec and Smith (2006) who argue that the optimal level of debt decreases in the presence of corporate growth options. |
| Keywords: | market leverage; book leverage; capital structure; adjustment speed |
| JEL: | G32 C23 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp598&r=bec |
| By: | Luz Adriana Flórez (Banco de la República de Colombia); Leonardo Morales Z (Banco de la República de Colombia); Daniel Medina; José Lobo C (Universidad Nacional de Colombia) |
| Abstract: | This paper explores the behavior of Colombia labour market flows. We focus on job creation and job destruction from the plant´s perspective, and on hiring and separations from the worker´s point of view. We show how these labour flows change across different dimensions such as, firm’s size, economic sectors, as well as wages and present the dynamic of tenure across these dimensions. Our results are in line with those of Birch (1981) and more recently Neumark et al. (2008), who found that small firms are the ones who created jobs in the economy. We found that small firms have higher job and worker reallocation rates; and firms especially those with less than 50 employees, are the ones with a higher employment growth rates compared to the larger ones. Moreover, we found that construction presents the highest labour flows, while manufacture the lowest. Finally, we found a negative relation between firm´s average wages and labour flows. Classification JEL: E24, J63, M50 |
| Keywords: | Job creation, Job destruction, Hiring, Separations, Firm´s size, Churning, Wages, Tenure. |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1013&r=bec |
| By: | Zha Giedt, Jenny |
| Abstract: | This paper documents the consequences of publicly announcing “strategic alternatives,” whereby the company reveals its decision to explore a potential sale or merger. The inherent uncertainty in ex-post transactional outcomes (i.e., whether the firm is sold, liquidated, or remains independent) allows me to identify positive and negative consequences differentially accruing to these subsamples. The public announcement of strategic alternatives is associated with excess takeover-related gains for firms that are subsequently acquired but abnormally negative returns for firms that are not subsequently sold. Tests of potential mechanisms are consistent with the public announcement generating greater investor attention and leading to a more informed M&A sale process that maximizes value for successful targets’ shareholders, while also being a costly admission of business problems that alienates company stakeholders and wears on operations. These consequences that are ultimately related to firm value underscore the varied costs and benefits managers should weigh when making this disruptive disclosure decision. |
| Keywords: | corporate disclosure; strategic alternatives; mergers and acquisitions; economic consequences; disclosure costs; disclosure benefits; information transmission; shareholder value |
| JEL: | D82 D84 G14 G34 M41 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81356&r=bec |
| By: | Kamal Anouar (GRM - Groupe de Recherche en Management - EA 4711 - IAE Toulon - Institut d'Administration des Entreprises (IAE) - Toulon - Institut d'Administration des Entreprises (IAE) - Nice - UTLN - Université de Toulon - UNS - Université Nice Sophia-Antipolis); Nicolas Aubert (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université) |
| Abstract: | This paper tests the catering theory of dividend in the French market. It investigates how prevailing investor's demand for dividend payers proxied by the dividend premia affects the dividend policy. The dividend premia are measured at the market level and at the firm level. We find that the market demand for dividends measured by dividend premia affects the decision to start, to continue or to omit to pay dividends and the decision to increase the dividends. However, catering theory does not seem to affect the magnitude of the dividend changes since most results are not significant. |
| Keywords: | Behavioral corporate,finance, Catering, Dividend premium,Dividends, Payout policy |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01401867&r=bec |
| By: | Francesco Manaresi (Bank of Italy); Filippo Scoccianti (Bank of Italy) |
| Abstract: | We study growth dynamics of firms before and during the financial crisis. We find that firms born during the recession display lower growth overtime in capital, employment and revenue, despite being more productive at entry than those born in normal times. We show that this pattern can be explained by credit market tightening, as measured by sector-level financial dependence and pre-crisis exposure to the interbank market. We argue that there may be two non-competing mechanisms that affect newborn firms during a financial crisis: firms enter with lower capital and, thus, face tighter collateral constraints; and banks select projects that are less risky, at the expenses of their future growth potential. We provide some evidence that both channels may play a role in explaining the observed pattern of firm dynamics. |
| Keywords: | firm dynamics, cohort analysis, financial crisis |
| JEL: | D22 D24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_390_17&r=bec |
| By: | Jan Hanousek; Anastasiya Shamshur; Jiri Tresl |
| Abstract: | Using a large sample of private firms over the period from 2001 to 2013, we study the effect of corruption uncertainty on corporate investments and cash holdings. We find that a higher uncertainty about the level of corruption is associated with lower corporate investments and lower cash holdings. These results are sensitive to the ownership structure of a firm. Firms with no foreign majority ownership appear to be more sensitive to corruption-induced uncertainty than majority-controlled foreign firms. They significantly decrease their investments and cash holdings. We hypothesize that they move their cash off-balance-sheet to create cash reserves as the uncertainty of when, whom, and how much to bribe increases. |
| Keywords: | corporate investment; corruption; uncertainty; cash holdings; firms; panel data; Europe |
| JEL: | C33 D24 G32 L60 L80 M21 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp597&r=bec |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Focusing on the role of compatibility between products, we consider the choice of internal decision-making structures—i.e., centralization and decentralization—and its effect on welfare in a network industry where there are horizontally differentiated products associated with network externalities. We demonstrate that if the degree of a network externality is sufficiently large, it is socially optimal to choose decentralization. Furthermore, in the case of consumer ex post expectations, it is optimal for the firm’s owners to choose centralization. However, it is socially preferable given a particular condition. |
| Keywords: | internal decision-making; centralization; decentralization; network externality; compatibility; multiproduct monopoly |
| JEL: | D43 D62 L14 L15 L41 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:166&r=bec |