nep-bec New Economics Papers
on Business Economics
Issue of 2017‒10‒29
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Cyclicality of Gross Margins By Sergio Rebelo; Arlene Wong; Eric Anderson
  2. Technology, Market Structure and the Gains from Trade By Impullitti, Giammario; Licandro, Omar; Rendahl, Pontus
  3. Offshoring and Firm Overlap By Stella Capuano; Hartmut Egger; Michael Koch; Hans-Jörg Schmerer
  4. Firm Innovation under Import Competition from Low-Wage Countries By Ujjayant Chakravorty; Runjuan Liu; Ruotao Tang
  5. An empirical study on firms' product entry strategy in the U.S. smartphone market By Lee, Kyungyul; Kwon, Youngsun
  6. Financial Frictions and Export Dynamics in Large Devaluations By Michal Szkup; Fernando Leibovici; David Kohn
  7. Matching Firms and Workers in a Field Experiment in Ethiopia By Girum Abebe; Stefano Caria; Marcel Fafchamps; Paolo Falco; Simon Franklin; Simon Quinn; Forhad Shilpi
  8. Worker separation under performance pay : Empirical evidence from Finland By Jones, Derek C.; Kalmi, Panu; Kato, Takao; Mäkinen, Mikko
  9. Technological catching-up, sales dynamics and employment growth: evidence from China's manufacturing firms By Giovanni Dosi; Xiaodan Yu
  10. Codetermination: the Necessary Presence of Workers on the Board. A Mathematical Model By Forcillo, Donato
  11. All Shook Up: International Trade and Firm-level Volatility By Mine Senses; Andrei Zlate; Christopher Kurz
  12. Investment climate, outward orientation and manufacturing firm productivity: New empirical evidence By Hoang Thanh Mai NGUYEN; Marie-Ange VEGANZONES-VAROUDAKIS
  13. The increasing presence of large firms and its consequences for US startup rates By Garnadt, Niklas
  14. BIG Data - BIG Gains? Understanding the Link Between Big Data Analytics and Innovation By Niebel, Thomas; Rasel, Fabienne; Viete, Steffen

  1. By: Sergio Rebelo (Northwestern University); Arlene Wong (Federal Reserve Bank of Minneapolis); Eric Anderson (Northwestern University)
    Abstract: How does the margin of price over costs vary across firms and products? How does the price margin vary over the business cycle? Do firms adjust their mark-ups or other dimensions of production in response to different types of aggregate shocks? Answering these questions is crucial for distinguishing between different macro models of firm dynamics, and for understanding the nature of business cycles and employment dynamics. In this paper, we provide direct evidence on the cross-sectional distribution and cyclicality of price margins, rather than relying on parametric assumptions on production functions and demand systems. We use a unique data source of prices and marginal costs from a large U.S. retailer, as well as firm-level data on gross margins and profits for large firms in the retail sector. We describe a simple geography model in the spirit of Melitz (2003) that is consistent with our empirical findings. We discuss the implications of these models for spatial variation, employment and regional inequality following aggregate economic shocks.
    Date: 2017
  2. By: Impullitti, Giammario; Licandro, Omar; Rendahl, Pontus
    Abstract: We study the gains from trade in an economy with oligopolistic competition, firm heterogeneity, and innovation. Oligopolistic competition together with free entry make markups responsive to firm productivity and trade costs. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Nevertheless, the downward pressure dominates and the average markup declines, deterring firms from entering the market and leading to higher market concentration. Neither the increased concentration nor the incomplete pass-through of trade costs to export markups are strong enough to compensate for the increase in competition on domestic sales. Thus the overall effect of trade on markups is pro competitive and a key source of the associated welfare gains. In addition to markups, selection and innovation provide additional channels through which the trade-induced effect on competition impacts welfare. In a quantitative exercise, we decompose the total gains from trade into these three contributing channels; we find that innovation plays a small but non-negligible role, while the main component is equally split between the pro-competitive and the selection channel.
    Keywords: Endogenous Market Structure; Endogenous Markups; Gains from trade; Heterogeneous Firms; Innovation; oligopoly
    JEL: F12 F13 O31 O41
    Date: 2017–10
  3. By: Stella Capuano; Hartmut Egger; Michael Koch; Hans-Jörg Schmerer
    Abstract: We set up a model of offshoring with heterogeneous producers that captures two empirical regularities of German offshoring firms. There is selection of larger, more productive firms into offshoring. However, the selection is not sharp, and offshoring and non-offshoring firms coexist over a wide range of the revenue distribution. An overlap of offshoring and non-offshoring firms emerges in our model because, in contrast to textbook models of trade with heterogeneous producers, we allow firms to differ in two technology parameters thereby decoupling the offshoring status of a firm from its revenues. In an empirical analysis, we employ firm-level data from Germany to estimate key parameters of the model and show that ignoring the overlap lowers the estimated gains from offshoring by more than 50 percent and, at the same time, exaggerates substantially the importance of the extensive margin for explaining the evolution of German offshoring over the last 25 years.
    Keywords: offshoring, heterogeneous firms, firm overlap, quantitative trade model, extensive and intensive margins of offshoring
    JEL: F12 F14 L11
    Date: 2017
  4. By: Ujjayant Chakravorty; Runjuan Liu; Ruotao Tang
    Abstract: In recent years, manufacturing firms in the United States have faced increasing import competition from low-wage countries, especially China. Does this competition hurt or help innovation by firms? This paper studies the effect of the surge in imports from China on innovation in the US manufacturing sector. We combine patent, firm and trade data during 1990-2006 for US publicly-listed firms in the Compustat dataset. We find consistent evidence that Chinese import competition had a positive effect on firm innovation, as measured by citation-weighted patent applications. This positive effect persists when we instrument import competition in the US by using Chinese import penetration in the United Kingdom. Next we investigate this relationship between import competition and innovation by considering industry and firm heterogeneity. We find that firms in low-tech industries and those with a lower degree of product differentiation show a significant positive response to import competition. Firms with a higher capital intensity and lower labor productivity also exhibit a greater response. These results are shown to be robust to a variety of measures for import penetration and innovation.
    Keywords: import competition, innovation, international trade, manufacturing firms, patents
    JEL: F10 F14 O31 O32
    Date: 2017
  5. By: Lee, Kyungyul; Kwon, Youngsun
    Abstract: Prior studies often examine the effect of inertia on enterprise strategy for attracting new consumers or attacking competitors in an industry. Various sources of the firm act as inertia for the incumbents in the strategy; the most representative example is incentives. For incumbents, large incentives reduce competitive inertia and motivate them to change strategy. For example, poor financial performance acts as an incentive. This study asks the question: does prior good performance motivate managers to retain their strategies in a competitive environment? As products in modern society have a very short life span and change rapidly, it is very dangerous for a company to stay in one place without any change in their strategy. Therefore, this paper focuses on the relationship between past performance and strategic choices of firms, and considers managerial incentive as a mediator between the two, even in a rapidly changing society. We analyze three aspects of change in a firm’s product strategies –market preemption, product diversification, and incremental product innovation–to observe the effect of inertia in the U.S. smartphone market. The results showed that past good performance resulted in some company strategies becoming passive. In addition, the past good performance of a company showed negative effects in expanding its market segment. The results were similar in terms of incremental product innovation. This implies that companies did not devote more time to product development once their products were valued well. Consequently, our paper empirically tested that past good performance caused inertia in product diversification and incremental product innovation strategies.
    Date: 2017
  6. By: Michal Szkup (The University of British Columbia); Fernando Leibovici (Federal Reserve Bank of St. Louis); David Kohn (Universidad Catolica de Chile)
    Abstract: We study the role of financial frictions and balance-sheet effects in accounting for the dynamics of aggregate exports in large devaluations. We investigate a small open economy with heterogeneous firms and idiosyncratic productivity shocks, where firms face financing constraints and debt can be denominated in domestic or foreign units. In our model, a real depreciation affects firms through two channels. On the one hand, it increases the returns to selling internationally, making exporting more profitable. On the other hand, it tightens the borrowing constraint by increasing the value of foreign-denominated debt relative to firms’ net worth. We calibrate the model to match key features from plant-level data and use it to quantify the importance of these channels. We find that financial frictions slow down the response of aggregate exports, and foreign-denominated debt amplifies this effect by decreasing firms’ net worth on impact. However, we find that these channels can only explain a small fraction of the dynamics of exports observed in the data. While financial frictions and balance-sheet effects distort production and investment decisions, exports are significantly less affected as firms reallocate sales across markets in response to the change in the real exchange rate. We document the importance of cross-market reallocation for export dynamics using firm-level data from Mexico’s devaluation in 1994.
    Date: 2017
  7. By: Girum Abebe; Stefano Caria; Marcel Fafchamps; Paolo Falco; Simon Franklin; Simon Quinn; Forhad Shilpi
    Abstract: Do matching frictions affect youth employment in developing countries? We organise job fairs in Addis Ababa, to match firms with a representative sample of young, educated job-seekers. We create very few jobs: one for approximately 10 firms that attended. We explore reasons for this, and find significant evidence for mismatched expectations: about wages, about firms requirements and about the average quality of job-seekers. We find evidence of learning and updating of beliefs in the aftermath of the fair. This changes behaviour: both workers and firms invest more in formal job search after the fairs.
    Keywords: matching, labour, job-search, firms, recruitment, experiment
    JEL: O18 J22 J24 J61 J64
    Date: 2017–10
  8. By: Jones, Derek C.; Kalmi, Panu; Kato, Takao; Mäkinen, Mikko
    Abstract: This paper investigates the role of individual incentive (II) and group incentive (GI) pay as determinants of worker separation. We use a large linked employer-employee panel data set for full-time male manufacturing workers during 1997-2006 from Finland. We follow actual job spells and switches of individual employees and define separation as worker exit from his current employer. The key finding for white-collar workers is that group incentive pay is associated significantly with increased probability of separation and hence diminished employment stability, but in large firms only. For blue-collar workers our results consistently indicate that individual incentive pay is associated with a decreased probability of separation and hence enhanced employment stability, both in small and large firms. Our finding that group incentive pay increases the risk of separation for white-collar workers is more consistent with theoretical work such as Lazear (2000) and Fehr and Gaechter (2000), while uncovering that individual incentive pay decreases employment stability for blue-collar workers supports theoretical work such as Parent (1999) and Paarsch and Shearer (2000).
    JEL: J33 M52 J31 J62 J63
    Date: 2017–10–19
  9. By: Giovanni Dosi; Xiaodan Yu
    Abstract: This paper investigates the microeconomics of employment dynamics, using a Chinese manufacturing firm-level dataset over the period 1998-2007. It does so in the light of a scheme of "circular and cumulative causation", whereby firms' heterogeneous productivity gains and sales dynamics, and innovation activities ultimately shape the patterns of employment dynamics. Using firm's productivity growth as a proxy for process innovation, our results show that the latter correlates negatively with firm-level employment growth. Conversely, relative productivity levels, as such a general proxy for the broad technological advantages/disadvantages of each firm, do show positive effect on employment growth in the long-run through replicator-type dynamics. Moreover, firm-level demand dynamics play a significant role in driving employment growth, which more than compensate the labour-saving effect due to technological progress. Finally, and somewhat puzzlingly, the direct effects of product innovation and patenting activities on employment growth appear to be negligible.
    Keywords: Employment Growth, Demand, Product Innovation, Process Innovation, Export, China catching-up
    Date: 2017–10–24
  10. By: Forcillo, Donato
    Abstract: We analyse in a firm the possible choice between two systems of corporate governance: the one-tier board, a structure commonly used in the Anglo-American world, and the system of Codetermination, a two-tier board with the presence of workers' representatives in the supervisory board, a model commonly adopted by firms in Germany. The aim is to fill a gap present in the current literature, the absence of a mathematical model that explains how works the governance's system of Codetermination presents not only in the German world, but expanding in many other European countries, as a result of the recent EU directives, which emphasize the need to involve workers in company decisions.
    Keywords: Corporate Governance, Codetermination, Labor Representation, Workers, Human Capital, Single Board, One-Tier Board, Monitoring, Welfare
    JEL: G34 L22
    Date: 2017–09–25
  11. By: Mine Senses (Johns Hopkins University); Andrei Zlate (Federal Reserve Bank of Boston); Christopher Kurz (Board of Governors)
    Abstract: Despite the large theoretical literature on the macroeconomic dynamics arising from international trade, there is little theoretical research that rationalizes the relationship between a firm's trading patterns and its volatility. Our paper attempts to fill this gap by exploring the relationship between firms' exporting and importing status and firm-level volatility in a dynamic, stochastic, general equilibrium model. We augment the framework with heterogeneous firms and endogenous exporting from Ghironi and Melitz (2005) to allow for international input sourcing. In this framework, we examine the firm-level volatility generated by the model for a cross-section of firm types, which are defined to reflect the rich heterogeneity in firms' international activities. In line with recent empirical evidence on the link between a firm's trade status and its volatility, the model predictions are: (1) Exporters display lower volatility than non-exporters, whereas importers display higher volatility that non-importers. (2) Firms that trade for longer durations display lower volatility than firms switching in and out of international trade. (3) Firms that export to uncorrelated foreign markets are less volatile, whereas firms importing from uncorrelated foreign suppliers are more volatile.
    Date: 2017
  12. By: Hoang Thanh Mai NGUYEN; Marie-Ange VEGANZONES-VAROUDAKIS (Centre d'Etudes et de Recherches sur le Développement International(CERDI))
    Abstract: Drawing on the World Bank Enterprise Surveys (WBES), we revisit the link between investment climate and firm productive performance for a panel of enterprises surveyed twice in 70 developing countries and 11 manufacturing industries. We take advantage of the surveys done at different times in an increasing number of economies, to tackle the endogeneity issue which has been seen as a problem in previous studies. We also use pertinent econometric techniques to address other biases inherent in the data, in particular measurement errors, missing observations, and multicollinearity. Our results reinforce previous findings by validating, with a larger than usual sample of countries and industries, the importance of a larger set of environment variables. We show that infrastructure quality (Infra), information and communication technologies (ICT), skills and experience of the labor force (H), cost of and access to financing (Fin), security and political stability (CrimePol), competition (Comp) and government relation (Gov) contribute to firms’ and countries’ different performances. The empirical analysis also illustrates that firms which chose an outward orientation have higher productivity levels. Nevertheless, outward oriented enterprises are, at the same time, more sensitive to investment climate limitations. These findings have important policy implications by showing which dimensions of the business environment, in which industry, could help manufacturing firms to be more competitive in the present context of increasing globalization.
    Keywords: Investment climate, Outward orientation, Manufacturing, Total factor productivity, Firm survey data.
    JEL: C52 L21 O14 O12 D24
    Date: 2017–10
  13. By: Garnadt, Niklas
    Abstract: While the significant decline in US startup rates over the past 30 years has raised concern about the health of the US economy its causes have not yet been fully understood. I document the concurrent increase in the size and presence of large firms in the US economy and link it to the decline in firm creation rates. I construct a simple model that rationalizes this channel by increases in the span of control of managers.
    JEL: E24 L25 L26
    Date: 2017
  14. By: Niebel, Thomas; Rasel, Fabienne; Viete, Steffen
    Abstract: This paper analyzes the relationship between firms’ use of big data analytics and their innovative performance for product innovations. Since big data technologies provide new data information practices, they create new decision-making possibilities, which firms can use to realize innovations. Applying German firm-level data we find suggestive evidence that big data analytics matters for the likelihood of becoming a product innovator as well as the market success of the firms’ product innovations. The regression analysis reveals that firms which make use of big data have a higher likelihood of realizing product innovations as well as a higher innovation intensity. Interestingly, the results are of equal magnitude in the manufacturing and services industries. The results support the view that big data analytics have the potential to enable innovation.
    Keywords: Big data,data-driven decision-making,innovation,product innovation,firmlevel data
    JEL: D22 L20 O33
    Date: 2017

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