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on Business Economics |
| By: | Pattanaik, Arpita (Indira Gandhi Institute of Development Research); Rajeswari Sengupta (Indira Gandhi Institute of Development Research) |
| Abstract: | In this paper we analyse the effect of business cycle fluctuations on firms' capital structure using a large panel of non-financial firms in India. In particular, we explore the dynamics of firm leverage across business cycle expansions and recessions for financially constrained and unconstrained firms. We find that the leverage of unconstrained firms exhibits counter-cyclical dynamics. Leverage of financially constrained firms does not show any cyclical pattern. These results are robust across different empirical methods of estimation. A healthy financial system is one where all firms are able to access the external debt market especially in a downturn. Our analysis shows that in the Indian financial system, external capital goes only to a certain category of firms. This has important policy implications for further developing the domestic financial markets and institutions. |
| Keywords: | Capital structure, Firm leverage, Financial constraints, Business cycle, Leverage determinants, Indian firms |
| JEL: | E32 G32 G1 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2018-001&r=bec |
| By: | Schneck, Stefan |
| Abstract: | Young firms are known to grow at a faster rate than incumbents. With administrative firm data from Germany, we show that the higher growth rates indeed translate into upward mobility within the firm size distribution. Young firms are therefore not only able to catch up, but also to grow larger in absolute values. Recentered influence function regression results reveal that young firms cause significant rank mobility within the stock of firms, which even holds when the local skewness of the firm size distribution is accounted for. The results clearly indicate a Schumpeterian growth process where young firms challenge established ones. |
| Keywords: | competition,entrepreneurship,firm entry,firm growth,sales mobility |
| JEL: | L10 L25 L26 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifmwps:0118&r=bec |
| By: | Saglam, Ismail |
| Abstract: | In this paper we borrow from Ciarreta and Gutierrez-Hita (2012) a duopolistic industry structure with cost asymmetry and demand uncertainty, and using this structure we build a bargaining model to study the division of collusion profits -obtained from the joint selection of supply functions- under the possibility of side payments. In our model, we consider potential disagreement points obtained from the non-cooperative equilibrium of either the quantity competition or the supply function competition, and potential bargaining solutions splitting the gains from agreement either equally or proportionally according to the relative disagreement payoffs of the duopolists. Given any of these disagreement points and any of these bargaining solutions, we find that each duopolist has always incentive to join a collusive agreement. On the other hand, irrespective of whether the bargaining solution splits the gains from agreement equally or proportionally respecting the relative disagreement payoffs, the more efficient firm (the less efficient firm) in the cartel always obtains a higher agreement payoff when the disagreement point is obtained from the equilibrium of supply function competition (quantity competition). Given the studied disagreement points and bargaining solutions, we also find that bargaining over collusion profits always makes the more efficient firm worse off and the less efficient firm better off in comparison to a collusive agreement equalizing the marginal costs of these two firms. |
| Keywords: | Duopoly; collusion; bargaining; Cournot competition; supply function competition; uncertainty |
| JEL: | D43 L13 |
| Date: | 2018–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84007&r=bec |
| By: | Giammario Impullitti; Omar Licandro; Pontus Rendahl |
| 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: | gains from trade, heterogeneous firms, oligopoly, innovation, endogenous markups, endogenous market structure. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:18/03&r=bec |
| By: | Alfaro, Laura; Antras, Pol; Chor, David; Conconi, Paola |
| Abstract: | In recent decades, advances in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. We describe a property-rights model of firm boundary choices along the value chain that generalizes Antràs and Chor (2013). To assess the evidence, we construct firmlevel measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model's predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm's propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage, as well as by the firm's productivity. Our results suggest that contractual frictions play an important role in shaping the integration choices of firms around the world |
| Keywords: | global value chains; sequential production; incomplete contracts |
| JEL: | D23 F14 F23 L20 |
| Date: | 2017–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86600&r=bec |
| By: | Calligaris, Sara; Del Gatto, Massimo; Hassan, Fadi; Ottaviano, Gianmarco I. P.; Schivardi, Fabiano |
| Abstract: | Productivity has recently slowed down in many economies around the world. A crucial challenge in understanding what lies behind this “productivity puzzle” is the still short time span for which data can be analysed. An exception is Italy where productivity growth started to stagnate 25 years ago. Italy therefore offers an interesting case to investigate in search of broader lessons that may hold beyond local specific cities. We find that resource misallocation has played a sizeable role in slowing down Italian productivity growth. If misallocation had remained at its 1995 level, in 2013 Italy's aggregate productivity would have been 18% higher than its actual level. Misallocation has mainly risen within sectors than between them, increasing more in sectors where the world technological frontier has expanded faster. Relative specialization in those sectors explains the patterns of misallocation across geographical areas and firm size classes. The broader message is that an important part of the explanation of the productivity puzzle may lie in the rising difficulty of reallocating resources between firms in sectors where technology is changing faster rather than between sectors with different speeds of technological change |
| Keywords: | misallocation; TFP; productivity puzzle; Italy |
| JEL: | D24 O11 O47 |
| Date: | 2017–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86617&r=bec |
| By: | Dosi, Giovanni; Yu, Xiaodan |
| 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 |
| JEL: | D22 J01 O33 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:177&r=bec |
| By: | Lucia Foster; Cheryl Grim; John Haltiwanger; Zoltan Wolf |
| Abstract: | We examine whether underlying industry innovation dynamics are an important driver of the large dispersion in productivity across firms within narrowly defined sectors. Our hypothesis is that periods of rapid innovation are accompanied by high rates of entry, significant experimentation and, in turn, a high degree of productivity dispersion. Following this experimentation phase, successful innovators and adopters grow while unsuccessful innovators contract and exit yielding productivity growth. We examine the dynamic relationship between entry, productivity dispersion, and productivity growth using a new comprehensive firm-level dataset for the U.S. We find a surge of entry within an industry yields an immediate increase in productivity dispersion and a lagged increase in productivity growth. These patterns are more pronounced for the High Tech sector where we expect there to be more innovative activities. These patterns change over time suggesting other forces are at work during the post-2000 slowdown in aggregate productivity. |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:18-08&r=bec |
| By: | Dhingra, Swati; Morrow, John |
| 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 marketdetermined 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: | D6 L1 |
| Date: | 2017–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86595&r=bec |
| By: | Boehm, Johannes; Dhingra, Swati; Morrow, John |
| Abstract: | The presence of global value chains challenges the neoclassical idea of the firm since it implies firms are not monolithic but are rather interdependent on the larger economic environment. Examining establishments, the smallest units of production within firms, sheds light on the microeconomic incentives determining the location of production and whether a firm produces a good or sources it. Most work on multiproduct firms looks at developed countries, but constraints on firm growth are greater in developing economies. We examine multiproduct establishments in India during a high growth period. Multiproduct establishments made up the bulk of manufacturing production, and their product turnover contributed 28 per cent to net sales growth. Unlike the nineties which witnessed drastic liberalization, establishments in the two-thousands dropped products at rates similar to those for the US. Sales dispersion across products also predicts product addition |
| Keywords: | multiproduct firms; product adoption; product diversity |
| JEL: | L1 L2 M2 O3 |
| Date: | 2017–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86603&r=bec |
| By: | JaeBin Ahn (Research Department, International Monetary Fund); Moon Jung Choi (Economic Research Institute, Bank of Korea) |
| Abstract: | Using the Korean manufacturing firm-level data, this paper confirms that three stylized facts on importing hold in Korea: the ratio of imported inputs in total inputs tends to be pro-cyclical; the use of imported inputs increases productivity; and larger firms are more likely to use imported inputs. As a result, we find that firm-level import decisions explain a non-trivial fraction of aggregate productivity fluctuations in Korea over the period between 2006 and 2012. Main findings of this paper suggest a possible link between the recent global productivity slowdown and the global trade slowdown. |
| Keywords: | Firm-level imports, Productivity pro-cyclicality, Aggregate TFP of manufacturing sector |
| JEL: | E3 F1 F4 O4 |
| Date: | 2016–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1606&r=bec |