nep-bec New Economics Papers
on Business Economics
Issue of 2017‒10‒15
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Decomposing the structure of wages into firm and worker effects: some insights from a high unemployment economy By Yolanda F. Rebollo-Sanz
  2. Foreign Ownership and Skill-biased Technological Change By Koch, Michael; Smolka, Marcel
  3. Older and Slower: The Startup Deficit’s Lasting Effects on Aggregate Productivity Growth By Titan Alon; David Berger; Robert Dent; Benjamin Pugsley
  4. Corporate governance and firm performance in China By Margit Molnar; Baolin Wang; Wenhao Chen
  5. 'Distance from the core' and new export survival: Evidence from Chilean exporters By Daniel Goya; Andrés Zahler
  6. Markets Take Breaks: Dynamic Price Competition with Opening Hours By Eibelshäuser, Steffen; Wilhelm, Sascha
  7. Import Competition and Vertical Integration: Evidence from India By Vencappa, Dev; Stiebale, Joel
  8. Export innovation: The role of new imported inputs and multinationality By Castellani, Davide; Fassio, Claudio
  9. The Impact of Employing Mismatched Workers on Firm Productivity, Wages and Profits By Halvarsson, Daniel; Tingvall, Patrik
  10. Minority share acquisitions and collusion: Evidence from the introduction of national leniency programs By Heim, Sven; Hüschelrath, Kai; Laitenberger, Ulrich; Spiegel, Yossi
  11. Efficiency in Large markets with Firm Heterogeneity By Swati Dhingra; John Morrow
  12. Firm Reorganization, Chinese Imports, and US Manufacturing Employment By Ildikó Magyari
  13. Firm heterogeneity and aggregate business services exports : Micro evidence from Belgium, France, Germany and Spain By Andrea Ariu; Elena Biewen; Sven Blank; Guillaume Gaulier; María Jesus González,; Philipp Meinen,; Daniel Mirza; Cesar Martín,; Patry Tello
  14. Businesspeople in Elected Office: Identifying Private Benefits from Firm-Level Returns By David Szakonyi
  15. Time to Build and the Business Cycle By Meier, Matthias
  16. Match Quality, Contractual Sorting and Wage Cyclicality By Joao Alfredo Galindo da Fonseca; Giovanni Gallipoli; Yaniv Yedid-Levi
  17. Credit Rationing and Firm Exports: Micro Evidence from SMEs in China By Cheng, Dong; Tan, Yong; Yu, Jian

  1. By: Yolanda F. Rebollo-Sanz (Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper estimates an individual wage equation where firm and workers effects are considered and the estimation process controls for censored wages. This exercise is performed for the Spanish economy over the course of a whole business cycle (2000-2015). It is acknowledged that Spain is a country where firm wage setting policies are at least as important as they are in to other European countries with apparently less rigid labour market. Spanish firms explain around 27% of the individual wage heterogeneity but more importantly around 74% of inter-industry wage differentials and these numbers increased over the current Big Recession. It is found evidence of an important sorting process of individual and firms across industries. Finally, it is also demonstrated that, for some key topics in labour economics such as the effect job mobility on wages, it is important to explicitly consider firm fixed effects.
    Keywords: high-dimensional fixed effects, individual wage decomposition, assortative matching, employer-employee dataset, inter-industry wage differentials, firm wage policies
    JEL: C24 C51 D30 J30
    Date: 2017–09
  2. By: Koch, Michael; Smolka, Marcel
    Abstract: This paper investigates theoretically and empirically firm-internal skill adjustments upon acquisition by a foreign investor and adresses the following questions: i) Does a acquired firm change its demand for skill and how (via hiring or training)? ii) Why would acquired firms engage in skill upgrading? Is it driven by by a greater market scale granted by the foreign parent? iii) How do technology and skill upgrading jointly affect the productivity of acquired firms?
    JEL: D22 D24 F23 G34
    Date: 2017
  3. By: Titan Alon; David Berger; Robert Dent; Benjamin Pugsley
    Abstract: We investigate the link between declining firm entry, aging incumbent firms and sluggish U.S. productivity growth. We provide a dynamic decomposition framework to characterize the contributions to industry productivity growth across the firm age distribution and apply this framework to the newly developed Revenue-enhanced Longitudinal Business Database (ReLBD). Overall, several key findings emerge: (i) the relationship between firm age and productivity growth is downward sloping and convex; (ii) the magnitudes are substantial and significant but fade quickly, with nearly 2/3 of the effect disappearing after five years and nearly the entire effect disappearing after ten; (iii) the higher productivity growth of young firms is driven nearly exclusively by the forces of selection and reallocation. Our results suggest a cumulative drag on aggregate productivity of 3.1% since 1980. Using an instrumental variables strategy we find a consistent pattern across states/MSAs in the U.S. The patterns are broadly consistent with a standard model of firm dynamics with monopolistic competition.
    JEL: E01 E24
    Date: 2017–09
  4. By: Margit Molnar; Baolin Wang; Wenhao Chen
    Abstract: A key priority in China’s “new normal” period -- where returns on investment are slackening -- is corporate governance, which could lead to enhanced productivity by a better management of resources at the firm level. Corporate governance principles for listed firms follow global best practices, though their history is relatively short and the Chinese stock market has a number of features, which make the investigation of the impact of various corporate governance practices on firm performance of particular interest. Productivity is considered as a major measure of firm performance, but for comparison accounting indicators are also used to check the impact of selected corporate governance practices using firm-level data of listed firms between 1999-2015. The results are broadly in line with the existing literature: once controlling for endogeneity, there is no evidence that a greater share of independent directors boosts firm performance in general. At the time when the requirement that at least one third of directors must be independent was introduced in 2002, however, profitability improved. A greater salary gap between executives and staff hurts productivity, but boosts ROA and ROE, which are often among the objectives of executives and thus encourage them to seek short-term returns, even at the expense of productivity. While volume-based growth may lead to higher performance by the accounting ratios, it does not necessarily guarantee higher productivity. If such an expansion is debt financed, it can even harm productivity. Excessive ownership concentration appears harmful, but a certain degree of concentration may improve performance. Institutional investors, even though may own only a tiny fraction of shares, are found to boost firm performance. This Working Paper relates to the 2017 OECD Economic Survey of China ( y-china.htm).
    Keywords: board structure, executive compensation, independent directors, institutional investors, ownership concentration, productivity
    JEL: G34 G38 P31
    Date: 2017–10–11
  5. By: Daniel Goya; Andrés Zahler
    Abstract: An important part of aggregate export growth is due to firms adding new varieties to their export baskets. We contribute to the literature on export flow survival by showing that a measure of the 'distance' between a new export and the previous export basket is a significant determinant of the survival of a new firm-product export flow. We present evidence suggesting that the measure we use is a good proxy for the theoretical 'distance from the core' in Eckel and Neary (2010), and that it is capturing technological, rather than demand complementarities across products.
    Keywords: Export diversification, extensive margin, export survival, product proximity.
    JEL: F14 L25 O30
    Date: 2017–10
  6. By: Eibelshäuser, Steffen; Wilhelm, Sascha
    Abstract: We study price cycles in the German retail gasoline market. We extend existing models of Bertrand competition by product differentiation, firm size and business hours. With sufficiently low product differentiation, there exists a unique subgame perfect equilibrium featuring Edgeworth price cycles. We test the model's predictions using an extensive data set. Last, we evaluate policy interventions and show that restrictions on price setting or increased market transparency harm consumer welfare.
    JEL: D43 L11 L13 L81
    Date: 2017
  7. By: Vencappa, Dev; Stiebale, Joel
    Abstract: This paper uses a rich firm-product panel data set of Indian manufacturing firms to analyze the relationship between import competition and vertical integration. Exploiting exogenous variations from changes in India's trade policy, we find that import competition induced by falling output tariffs increases vertical integration by domestic firms, with the effects concentrated in rather homogenous product categories, among firms that mainly operate on the domestic market and in larger firms.
    JEL: F23 G34 L25 D22 D24
    Date: 2017
  8. By: Castellani, Davide (University of Reading); Fassio, Claudio (CIRCLE, Lund University)
    Abstract: This paper focuses on the determinants of export innovation, that is innovation in a firm’s export product portfolio. We argue that this novel measure is an important proxy of the overall competitiveness of exporters. We identify two main factors that contribute to the introduction of export innovations at the firm level: importing new inputs and being part of a multinational group. Based on a sample of more than 14,000 Swedish manufacturing firms over the period 2001-2012, we show that importing new inputs is a key determinant of innovation in exported products, even after controlling for multinationality and a number of other firm characteristics. The effect of new imports is particularly strong for small firms and is mainly due to the import of new intermediate inputs. Being part of a multinational group has instead an ambivalent effect on export innovations of Swedish firms: while small firms acquired by foreign MNEs show a short term reduction in export innovation, this is not true for large firms, which instead increase their export innovation when they establish subsidiaries abroad or become part of a Swedish-owned multinational group.
    Keywords: innovation; importing; exporting; multinational enterprises; Sweden
    JEL: F23 O30
    Date: 2017–10–05
  9. By: Halvarsson, Daniel (The Ratio Institute); Tingvall, Patrik (The Ratio Institute)
    Abstract: Educational mismatch in the form of over- and under-educated workers has long been studied in relation to labor market outcomes for individual workers. While its consequences for individual workers and society are dire, we have only anecdotal evidence of its consequences for firms' competitiveness. To bridge this gap, this paper studies the impact of mismatch on firm productivity, wages and profit. The results suggest an asymmetric effect from employing over- and under-educated workers. We find that while employing over-educated workers add to wage cost, there are no matching productivity gains, By contrast, the performance of under-educated workers more than compensates for their wage costs, leading to increased profits at the firm level. The net effect, therefore, in the form of gross operating surplus is significantly negative (positive) when firms employ over- (under-)educated workers. The results suggest that the positive effects primarily stem from under-educated young workers, whereas the losses can be traced to over-educated older workers.
    Keywords: Educational; mismatch; ·; Productivity; ·; Labor; cost; ·; Profits; ·; Proxy; variable
    JEL: J24 L25 L60
    Date: 2017–09–21
  10. By: Heim, Sven; Hüschelrath, Kai; Laitenberger, Ulrich; Spiegel, Yossi
    Abstract: There is a growing concern that minority shareholding (MS) in rival firms may facilitate collusion. To examine this concern, we exploit the fact that leniency programs (LPs) are generally recognized as a shock that destabilizes collusive agreements and study the effect that the introduction of an LP has on horizontal MS acquisitions. Using data from 63 countries over the period 1990-2013, we find a large increase in horizontal MS acquisitions in the year in which an LP is introduced, especially in large rivals. The effect is present however only in countries with an effective antitrust enforcement and low levels of corruption and only when the acquisitions involve stakes of 10%-20%. These results suggest that MS acquisitions may stabilize collusive agreements that were destabilized by the introduction of the LP.
    Keywords: minority shareholdings,collusion,leniency programs,cartel stability
    JEL: G34 K21 L41
    Date: 2017
  11. By: Swati Dhingra; John Morrow
    Abstract: Abstract Empirical work has drawn attention to the high degree of productivity differences within industries, and its role in resource allocation. In a benchmark monopolistically competitive economy, productivity differences introduce two new margins for allocational inefficiency. When markups vary across firms, laissez faire markets do not select the right distribution of firms and the market-determined quantities are inefficient. We show that these considerations determine when increased competition from market expansion takes the economy closer to the socially efficient allocation of resources. As market size grow large, differences in market power across firms converge and the market allocation approaches the efficient allocation of an economy with constant markups.
    Keywords: efficiency, productivity, limit theorem, market expansion, competition
    JEL: F1 L1 D6
    Date: 2017–10
  12. By: Ildikó Magyari
    Abstract: What is the impact of Chinese imports on employment of US manufacturing firms? Previous papers have found a negative effect of Chinese imports on employment in US manufacturing establishments, industries, and regions. However, I show theoretically and empirically that the impact of offshoring on firms, which can be thought of as collections of establishments – differs from the impact on individual establishments - because offshoring reduces costs at the firm level. These cost reductions can result in firms expanding their total manufacturing employment in industries in which the US has a comparative advantage relative to China, even as specific establishments within the firm shrink. Using novel data on firms from the US Census Bureau, I show that the data support this view: US firms expanded manufacturing employment as reorganization toward less exposed industries in response to increased Chinese imports in US output and input markets allowed them to reduce the cost of production. More exposed firms expanded employment by 2 percent more per year as they hired more (i) production workers in manufacturing, whom they paid higher wages, and (ii) in services complementary to high-skilled and high-tech manufacturing, such as R&D, design, engineering, and headquarters services. In other words, although Chinese imports may have reduced employment within some establishments, these losses were more than offset by gains in employment within the same firms. Contrary to conventional wisdom, firms exposed to greater Chinese imports created more manufacturing and nonmanufacturing jobs than non-exposed firms.
    Date: 2017–01
  13. By: Andrea Ariu (University of Geneva, Switzerland,Georgetown University, USA and CRENOS, Italy); Elena Biewen (Deutsche Bundesbank); Sven Blank (Deutsche Bundesbank); Guillaume Gaulier (Banque de France and CEPII); María Jesus González, (Banco de España); Philipp Meinen, (Deutsche Bundesbank); Daniel Mirza (University François Rabelais de Tours, LEO-CNRS (Orleans), Banque de France and CEPII.); Cesar Martín, (Banco de España); Patry Tello (Banco de España)
    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.
    Keywords: service exports, firm heterogeneity, cross-country micro data study
    JEL: F14
    Date: 2017–09
  14. By: David Szakonyi (George Washington University and ICSID)
    Abstract: Do businesspeople that win elected office use their positions to help their firms? Busi- nessperson politicians are common worldwide, but little is known about the consequences of their entrance into politics. Using an original dataset of 2,706 firms in Russia, I employ a regression discontinuity design to identify the causal effect of firm directors winning seats in subnational legislatures in 2004-2013. I show that having a connection to a winning candidate increases a firm’s revenue by 60% and profit margin by 15% over their term in office. I then test between different mechanisms, finding that connected firms improve their performance by gaining access to bureaucrats, and not by signaling legitimacy to financiers. The value of win- ning a seat increases in more politically competitive regions, but falls markedly when more businesspeople win office in a convocation. Politically connected firms extract fewer benefits when faced with greater competition from other rent-seekers.
    Date: 2017
  15. By: Meier, Matthias
    Abstract: Investment is central for business cycles and a key characteristic of investment is time to build (TTB). I document that TTB is volatile and largest during recessions. To study these fluctuations, I develop a model. In the model, the longer TTB, the less frequently firms invest, and the less investment reflects productivity, which worsens the allocation of capital. In the calibrated model, one month longer TTB lowers GDP by 0.5%. Empirical evidence corroborates the quantitative results.
    JEL: C32 C68 D92 E01 E22 E32
    Date: 2017
  16. By: Joao Alfredo Galindo da Fonseca (University of British Columbia, Vancouver School of Economics); Giovanni Gallipoli (University of British Columbia); Yaniv Yedid-Levi (University of British Columbia, Vancouver School of Economics)
    Abstract: This paper studies the role of match quality for contractual arrangements, wage dynamics and workers’ retention. We develop a model in which profit maximizing firms offer a performance-based pay arrangement to retain workers with relatively high match-specific productivity. The key implications of our model hold in data from the NLSY79, where information about job histories and performance pay is available. We relate our findings to the literature on occupation heterogeneity and provide evidence that jobs in "cognitive" occupations have better match quality, exhibit higher prevalence of performance pay, display significant sensitivity of wages to business cycle conditions and last longer.
    Keywords: match quality, contracts, heterogeneity, occupation, wages, cyclicality
    JEL: M52 M55 J33 J41 E24
    Date: 2017–10
  17. By: Cheng, Dong; Tan, Yong; Yu, Jian
    Abstract: In this study we examine the effect of credit rationing on export performance for small and medium sized firms in China. We use a detailed firm-level data provided by the Small and Medium-sized Enterprises Dynamic Survey (SMEDS) to conduct this analysis. SMEDS provides firm-specific measures of credit rationing based directly on firm-level responses to the survey rather than indirectly from firm-level financial statements. We find that, at the extensive margin, weak and strong credit rationing reduce SMEs' export probability by 22% and 36%, respectively. At the intensive margin, they decrease SMEs' export values by more than 32% and over 66%, respectively. Different from existing literature, we construct valid firm-level instruments, firm-level housing investments and receivables, for credit rationing rather than using province-level instruments. In addition, credit rationing exhibits heterogeneous impacts on firms with different liquidity ratios, product portfolios, external collateral and capital utilization rates.
    Keywords: SMEs, Strong Credit Rationing, Weak Credit Rationing, Export Performance
    JEL: F10 G20
    Date: 2017–10–12

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