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on Business Economics |
| By: | Yan Bai; Dan Lu; Xu Tian |
| Abstract: | We use firm-level data to identify financial frictions in China and explore the extent to which they can explain firms' saving and capital misallocation. We first document the features of the data in terms of firm dynamics and debt financing. State-owned firms have higher leverage and pay much lower interest rates than non-SOEs. Among privately owned firms, smaller firms have lower leverage, face higher interest rates, and operate with a higher marginal product of capital. We then develop a heterogeneous-firm model with two types of financial frictions, default risk, and a fixed cost of issuing loans. Our model generates endogenous borrowing constraints as banks consider the firm's productivity, asset, and debt when providing a loan. Using evidence on the firm size distribution and financing patterns, we estimate the model and find it can explain aggregate firms' saving and investment and around 50 percent of the dispersion in the marginal product of capital within private firms, which translates into a TFP loss as high as 12%. |
| JEL: | E2 G3 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24436&r=bec |
| By: | Yuriy Gorodnichenko; Debora Revoltella; Jan Svejnar; Christoph T. Weiss |
| Abstract: | Using a new survey, we show that the dispersion of marginal products across firms in the European Union is about twice as large as that in the United States. Reducing it to the US level would increase EU GDP by more than 30 percent. Alternatively, removing barriers between industries and countries would raise EU GDP by at least 25 percent. Firm characteristics, such as demographics, quality of inputs, utilization of resources, and dynamic adjustment of inputs, are predictors of the marginal products of capital and labor. We emphasize that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature. We also show that cross-country differences in the dispersion of marginal products are more due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes than to the differences in firm characteristics per se. |
| JEL: | D22 D24 O12 O47 O52 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24444&r=bec |
| By: | Gorodnichenko, Yuriy (University of California, Berkeley); Revoltella, Debora (European Investment Bank); Svejnar, Jan (Columbia University); Weiss, Christoph T. (European Investment Bank) |
| Abstract: | Using a new survey, we show that the dispersion of marginal products across firms in the European Union is about twice as large as that in the United States. Reducing it to the US level would increase EU GDP by more than 30 percent. Alternatively, removing barriers between industries and countries would raise EU GDP by at least 25 percent. Firm characteristics, such as demographics, quality of inputs, utilization of resources, and dynamic adjustment of inputs, are predictors of the marginal products of capital and labor. We emphasize that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature. We also show that cross-country differences in the dispersion of marginal products are more due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes than to the differences in firm characteristics per se. |
| Keywords: | marginal products, resource allocation, firm-specific factors, economic growth |
| JEL: | O12 O47 O52 D22 D24 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11401&r=bec |
| By: | Isil Erel; Léa H. Stern; Chenhao Tan; Michael S. Weisbach |
| Abstract: | Can an algorithm assist firms in their hiring decisions of corporate directors? This paper proposes a method of selecting boards of directors that relies on machine learning. We develop algorithms with the goal of selecting directors that would be preferred by the shareholders of a particular firm. Using shareholder support for individual directors in subsequent elections and firm profitability as performance measures, we construct algorithms to make out-of-sample predictions of these measures of director performance. We then run tests of the quality of these predictions and show that, when compared with a realistic pool of potential candidates, directors predicted to do poorly by our algorithms indeed rank much lower in performance than directors who were predicted to do well. Deviations from the benchmark provided by the algorithms suggest that firm-selected directors are more likely to be male, have previously held more directorships, have fewer qualifications and larger networks. Machine learning holds promise for understanding the process by which existing governance structures are chosen, and has potential to help real world firms improve their governance. |
| JEL: | G34 M12 M51 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24435&r=bec |
| By: | Panicker, Vidya Sukumara (Indian Institute of Management Kozhikode); Sumit Mitra (Indian Institute of Management Kozhikode); Rajesh Srinivas Upadhyayula (Indian Institute of Management Kozhikode) |
| Abstract: | Extant literature on Corporate Governance predominantly examines the characteristics of Anglo-Saxon system of corporate governance. Characteristics of board of directors, such as board independence are the outcomes of primary agency problems, observed in this model of corporate governance. However, there is a need to examine the role of board across distinct corporate governance systems arising out of their unique economic and regulatory regimes. For instance, countries with higher ownership concentration and weaker investor protection, face a secondary agency problem and rely more on debt financing for growth. In this study, we examine a specific feature in the Indian Corporate Governance context i.e. representatives of financing institutions on the board of the directors, also known as nominee directors. We use a behavioral risk perspective to understand the preferences of these groups of board member. On a sample of 764 unique firms and 4216 firm year observations spanning the period 2006-2017, we find that the nominee directors are negatively associated with internationalization of emerging economy firms. In addition, we also find that the nominee directors negatively moderate the relationship between different ownership groups (such as pressure sensitive investors and family owners) and internationalization investments of emerging economy firms. |
| Keywords: | Corporate Governance, the Indian Corporate Governance |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:051&r=bec |
| By: | Mittal, Amit; Garg, Ajay Kumar |
| Abstract: | An analysis of Indian CNX Nifty 100 companies across the last two recessions or the Global Financial Crises highlights practices of earnings management. The crisis response uncovers the perils of opportunistic earnings management as crises affect balance sheets in FY2007 and FY2012. The study proves indications of Performance measurement hypothesis yet primarily only Opportunistic accruals with negative correlation between Post crisis and precrisis accruals and accruals increasing in the post crisis year. Operating accruals of the firm are synonymous with its Working Capital investment. These translate into dependencies on Working Capital investments to finance growth. Earnings management impairs a firm’s ability to smoothen earnings during a continued crisis. It instead resonates with the build-up of cookie jar reserves in the bigger companies and those that invest in Corporate Governance. The presence of negative accruals may show effects of high growth and slack corporate governance. Banking firms respond with a more sophisticated earnings management strategy where Loan Loss provisions significantly increase with increase in Cash profits. |
| Keywords: | Discretionary Accruals, Earnings Management, GFC, Global Financial Crisis, Financial Reporting, Corporate Governance, India, CNX Nifty 100 |
| JEL: | G10 G14 G20 G30 M41 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:85353&r=bec |
| By: | Chang-Tai Hsieh; Peter J. Klenow |
| Abstract: | There is a widely held view that much of growth in the U.S. can be attributed to reallocation from low to high productivity firms, including from exiting firms to entrants. Declining dynamism — falling rates of reallocation and entry/exit in the U.S. — have therefore been tied to the lackluster growth since 2005. We challenge this view. Gaps in the return to resources do not appear to have narrowed, suggesting that allocative efficiency has not improved in the U.S. in recent decades. Reallocation can also matter if it is a byproduct of innovation. However, we present evidence that most innovation comes from existing firms improving their own products rather than from entrants or fast-growing firms displacing incumbent firms. Length: 26 pages |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:18-19&r=bec |
| By: | Naomi Mathenge (School of Economics, University of Cape Town); Eftychia Nikolaidou (School of Economics, University of Cape Town) |
| Abstract: | This study examines the effect of firm financing choices on firm performance. Firm performance is measured by firm productivity, specifically, the Total Factor Productivity (TFP) of a firm. The study uses firm level data from the World Bank Enterprise Survey (WBES) to investigate the effect of different financing options on the productivity of SSA firms. Using data for the period 2005 - 2013 from 26 countries, the study employs a linear Cobb-Douglas production function to estimate total factor productivity (TFP.) It then uses both parametric and non-parametric methods to analyse the effect of financing options on TFP. The results indicate that firms that rely on bank debt rather than other forms of financing (e.g. internal finance, informal finance, private and public equity) are, on average, more productive. This can be partly attributed to the monitoring activities of banks and the threat of bankruptcy faced by firms. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ctn:dpaper:2018-07&r=bec |
| By: | Peter Zwaneveld (CPB Netherlands Bureau for Economic Policy Analysis); Raoul van Maarseveen (CPB Netherlands Bureau for Economic Policy Analysis); Steven Brakman (RUG); Harry Garretsen (RUG) |
| Abstract: | According to the Melitz (2003) model, potential exporters have to be sufficiently productive to overcome the entry costs of foreign markets. Once firms pass this productivity threshold, they all export. However, empirical evidence indicates that a substantial share of high-productive firms do not export. Stimulating these highly productive firms to export is of interest to policy makers, as this provides these firms with new growth opportunities. In this paper, we focus specifically on this group of high-productive non-exporters and identify the factors that might prevent them from successfully exporting. We employ a large micro-dataset for Dutch firms both in services and manufacturing for the period 2010-2014. Our findings are threefold. First, high productivity is an important, but not a sufficient condition for exporting. Firm size (substitute for productivity), import status, and foreign ownership are also important. Second, firm location is crucial. A location in peripheral areas prevents high productive firms from exporting; especially a location in the Northern part of the Netherlands reduces the probability to export. Third, our set-up identifies individual firms that are potential exporters. |
| JEL: | F12 F14 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:369&r=bec |
| By: | Song, Jae (Social Security Administration); Price, David (Princeton University); Guvenen, Fatih (Federal Reserve Bank of Minneapolis); Bloom, Nicholas (Stanford University); von Wachter, Till (University of California Los Angeles) |
| Abstract: | We use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We find that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred between firms. However, this rising between-firm variance is not accounted for by the firms themselves: the firm-related rise in the variance can be decomposed into two roughly equally important forces—a rise in the sorting of high-wage workers to high-wage firms and a rise in the segregation of similar workers between firms. In contrast, we do not find a rise in the variance of firm-specific pay once we control for worker composition. Instead, we see a substantial rise in dispersion of person-specific pay, accounting for 68% of rising inequality, potentially due to rising returns to skill. The rise in between-firm variance, mostly due to worker sorting and segregation, accounted for a particularly large share of the total increase in inequality in smaller and medium firms (explaining 84% for firms with fewer than 10,000 employees). In contrast, in the very largest firms with 10,000+ employees, 42% of the increase in the variance of earnings took place within firms, driven by both declines in earnings for employees below the median and a substantial rise in earnings for the 10% best-paid employees. However, because of their small number, the contribution of the very top 50 or so earners at large firms to the overall increase in within-firm earnings inequality is small. |
| Keywords: | Income inequality; Pay inequality; Between-firm inequality |
| JEL: | E23 J21 J31 |
| Date: | 2018–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:750&r=bec |
| By: | Dora Abidi (Ph.D. Student, Graduate School of Economics, Osaka University) |
| Abstract: | During the last decade, the need and importance of soft skills are significantly increasing because of three main reasons. Firstly, the firm fs performance is highly associated to the firm f interaction with its external environment that involves customers and local stakeholders. Secondly, the workplace productivity is highly depending on the quality of relationship and communication among the employees. Thirdly, today fs environment is considered as a VUCA (Volatile, Uncertain, Complex and Ambiguous) situation and represents serious challenge. Thus, firms should create people oriented skills such as problem solving and communication. In addition, decisions makers should develop an accurate response when they meet the unexpected. They could be the employees from upper to mid-level position employees. Drawing on these critical conclusions, this study aims at providing empirical evidence on the positive impact of employees f soft skills on firm fs capabilities in terms of innovation performance, firm fs knowledge, explorative and exploitative behavior and strategic flexibility. The survey was conducted with 67 firms based in Tunisia, which is one of the leading emerging countries in the MENA region that has recently faced social and economic changes. Our results concur with the employer survey and explain the reason why employers are increasingly looking for these skills in their employees. |
| Keywords: | Soft skills, innovativeness, VUCA, Tunisia |
| JEL: | M12 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1808&r=bec |
| By: | Huber, Kilian |
| Abstract: | Lending cuts by banks directly affect the firms borrowing from them, but also indirectly depress economic activity in the regions in which they operate. This paper moves beyond firm-level studies by estimating the effects of an exogenous lending cut by a large German bank on firms and counties. I construct an instrument for regional exposure to the lending cut based on a historic, postwar breakup of the bank. I present evidence that the lending cut affected firms independently of their banking relationships, through lower aggregate demand and agglomeration spillovers in counties exposed to the lending cut. Output and employment remained persistently low even after bank lending had normalized. Innovation and productivity fell, consistent with the persistent effects. |
| JEL: | E32 E44 G21 G32 R11 R23 |
| Date: | 2018–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:87410&r=bec |