nep-bec New Economics Papers
on Business Economics
Issue of 2018‒05‒21
twenty papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Impact of Exports on Innovation: Theory and Evidence By Philippe Aghion, Antonin Bergeaud, Matthieu Lequien, Marc J. Melitz
  2. Firm export diversification and change in workforce composition By Sarah Guillou; Tania Treibich
  3. Firm-to-firm Connections in Colombian Imports By Andrew B. Bernard; Esther A. Bøler; Swati Dhingra
  4. How Accurate is the Coordinate Price Pressure Index to Predict Mergers’ Coordinated Effects? By Ivaldi, Marc; Lagos, Vicente
  5. Internationalization and firm valuation: New evidence from first offshore bond issuances of US firms By Nebosja Dimic; Vitaly Orlov;
  6. Reallocation and productivity during the Great Recession:evidence from French manufacturing firms By Giacomo Domini; Daniele Moschella
  7. Gender Gaps in Performance: Evidence from Young Lawyers By Ghazala Azmat; Rosa Ferrer
  8. Networks and Trade By Andrew B. Bernard; Andreas Moxnes
  9. Emission taxes, firm relocation, and quality differences By Birg, Laura; Voßwinkel, Jan S.
  10. Why factors facilitating collusion may not predict cartel occurrence: Experimental evidence By Fonseca, Miguel A.; Li, Yan; Normann, Hans-Theo
  11. Determinants and Economic Consequences of Signing Auditor Turnover: A Large-Scale Study from China REPORT By Juan Mao; Baolei Qi
  12. Do CEOs affect employees' political choices? By Ilona Babenko; Viktar Fedaseyeu; Song Zhang
  13. Why Do Firms (Dis)Like Part-Time Contracts? By Francesco Devicienti; Elena Grinza; Davide Vannoni
  14. Cash holding and control-oriented finance By Anderson, Ronald W.; Hamadi, Malika
  15. Temporary exports and characteristics of destination countries: First evidence from German transaction data By Wagner, Joachim
  16. The Impact of Sickness Absenteeism on Productivity: New Evidence from Belgian Matched Panel Data By Elena Grinza; Francois Rycx
  17. New Evidence on the Markup of Prices over Marginal Costs and the Role of Mega-Firms in the US Economy By Robert E. Hall
  18. Escaping Import Competition and Downstream Tariffs By Ana Cecília Fieler; Ann Harrison
  19. Specialization Matters in the Firm Size-Wage Gap By Maria Molina-Domene
  20. Big Data in Finance and the Growth of Large Firms By Juliane Begenau; Maryam Farboodi; Laura Veldkamp

  1. By: Philippe Aghion, Antonin Bergeaud, Matthieu Lequien, Marc J. Melitz
    Abstract: This paper investigates the effect of export shocks on innovation. On the one hand a positive shock increases market size and therefore innovation incentives for all firms. On the other hand it increases competition as more firms enter the export market. This in turn reduces profits and therefore innovation incentives particularly for firms with low productivity. Overall the positive impact of the export shock on innovation is magnified for high productivity firms, whereas it may negatively affect innovation in low productivity firms. We test this prediction with patent, customs and production data covering all French manufacturing firms. To address potential endogeneity issues, we construct firm-level export proxies which respond to aggregate conditions in a firm's export destinations but are exogenous to firm-level decisions. We show that patenting robustly increases more with export demand for initially more productive firms. This effect is reversed for the least productive firms as the negative competition effect dominates.
    Keywords: Innovation, trade, export, demand shocks, patents
    JEL: D21 F13 F14 F41 O30 O47
    Date: 2018
  2. By: Sarah Guillou (Observatoire français des conjonctures économiques); Tania Treibich (Maastricht University)
    Abstract: The objective of this paper is to show that part of the fixed cost of firms’ trade expansion is due to the acquisition of new internal capabilities (e.g. technology, production processes or skills), which imply a costly change in the firm’s internal labor organisation. We investigate the relationship between a firm’s structure of labor, in terms of relative number of managers, and the scope of its export portfolio, in terms of product-destination varieties. The empirical analysis is based on a matched employer- employee dataset covering the population of French firms from tradable sectors over the period 2009-2014. Our analysis suggests that market expansion, and in particular export diversification, is associated with a change in the firm’s workforce composition, namely an increase in the number of managerial layers and in the ratio of managers. We show how these results are consistent with a simple model where the complexity of a firm’s operations increases in the number of product-destination couples exported, and where managers’ role is to address the unsolved problems arising from such increased complexity of operations
    Keywords: Export diversification; Managers; Occupations; Employer -employee data
    JEL: F16 E24 C14 D2
    Date: 2017–10
  3. By: Andrew B. Bernard; Esther A. Bøler; Swati Dhingra
    Abstract: The vast majority of world trade flows is between firms. Only recently has research in international trade started to emphasize the importance of the connections between exporters and importers both in aggregate trade flows and in the negative relationship between trade and geographic distance. This chapter documents the role of firm-to-firm connections in trade flows and the formation and duration of these importer-exporter relationships. Using customs data from Colombia for 1995-2014, we are able to identify both the Colombian importing firm and the foreign exporter in every Colombian import and export transaction. We document both the nature of these bilateral trading relationships and their evolution over time.
    JEL: F14
    Date: 2018–04
  4. By: Ivaldi, Marc; Lagos, Vicente
    Abstract: The Coordinate Price Pressure Index (CPPI) measures the incentives of two competitors to engage in a particular type of Parallel Accommodating Conduct (PAC). Specifically, it measures the incentives of a leader firm to initiate a unilateral percentage price increase, with the expectation that a follower firm will match it. Using a large set of simulated markets, we measure the accuracy of the index in terms of predicting the impact of a merger on firms’ incentives to engage in PAC. Results suggest that the CPPI only displays a fair performance when predicting an increase in firm’s incentives to engage in PAC, and only in mergers in which the diversion ratio between the target and the acquiring firm is low. However, the index displays a poor performance when predicting mergers with a significant anticompetitive effect.
    Keywords: Coordinate Price Pressure Index ; Parallel Accommodating Conduct ; Merger Simulation
    JEL: K21 L41
    Date: 2018–04
  5. By: Nebosja Dimic; Vitaly Orlov;
    Abstract: Does internationalization affect firm valuation? To answer this question, literature mainly considers firms from around the world internationalizing by issuing equity in the USA, whereas the current study focuses on US firms that internationalize by issuing debt in overseas markets. This paper provides evidence on theories of internationalization and capital structure, finding that overseas corporate debt offerings have a positive short-term effect on US firms' valuations. The effect varies in firm characteristics, timing, and the location of the issue. Additionally, firms with a strong need for external funds and growth prospects accelerate their offshore public debt market entry.
    Keywords: Internationalization, Debt Structure, Segmentation, Tobins's q
    JEL: G15 G32 F36
    Date: 2018–02
  6. By: Giacomo Domini; Daniele Moschella
    Abstract: According to the `cleansing hypothesis', recessions are periods in which productivity-enhancing reallocation intensifies, shifting resources away from less efficient to more efficient firms at a greater pace. Does the Great Recession of 2008-2010 fit this view? We address this question, studying the case of the French manufacturing sector. Based on a panel of firms, built by matching data from several sources, we investigate the contribution of productivity to firm growth and survival over the period 2002-2013. Our results show that, during the recent global crisis, more productive firms decreased their advantage with respect to less productive firms, in terms of both employment growth and probability to survive, in disagreement with the cleansing hypothesis.
    Keywords: firm productivity, selection, employment growth, global crisis
    Date: 2018–05–15
  7. By: Ghazala Azmat; Rosa Ferrer (Universitat Pompeu Fabra [Barcelona])
    Abstract: This paper documents the gender gap in performance among high-skilled professionals in the United States. On the basis of widely used performance measures in law firms, we find that male lawyers bill 10 percent more hours and bring in more than twice as much new client revenue as female lawyers. The differential impact across genders in the presence of young children and differences in aspirations to become a law firm partner account for a large share of the difference in performance. We show that accounting for performance has important consequences for gender gaps in lawyers’ earnings and subsequent promotion.
    Keywords: Performance measures; Gender gaps; High-skilled professionals
    JEL: M52 J16 K40 J44
    Date: 2017–10
  8. By: Andrew B. Bernard; Andreas Moxnes
    Abstract: Trade occurs between firms both across borders and within countries, and the vast majority of trade transactions includes at least one large firm with many trading partners. This paper reviews the literature on firm-to-firm connections in trade. A growing body of evidence coming from domestic and international transaction data has established empirical regularities which have inspired the development of new theories emphasizing firm heterogeneity among both buyers and suppliers in production networks. Theoretical work has considered both static and dynamic matching environments in a framework of many-to-many matching. The literature on trade and production networks is at an early stage, and there are a large number of unanswered empirical and theoretical questions.
    JEL: F10 F12 F14 L11 L21
    Date: 2018–04
  9. By: Birg, Laura; Voßwinkel, Jan S.
    Abstract: This paper studies the effect of an emission tax on the relocation decision in a duopoly with exogenous vertical product differentiation. We establish the relationship between quality difference, relocation cost, and marginal damage of emissions in a two-country-setting for three cases: An environmental tax set only by one country, non-cooperative environmental taxation in both countries, and coordinated environmental taxation. We consider two different timings, a time-consistent government, and a committed government. The higher the quality difference is, the more likely it is that at least one firm relocates to the foreign country. A lower marginal damage decreases the equilibrium tax rate and lowers the incentive for relocation. If also the foreign country applies an emission tax, there is no equilibrium in which both firms relocate to the foreign country. If both governments set taxes non-cooperatively, the low-quality firm never relocates in equilibrium. If both countries set taxes cooperatively, it is more likely that both fi rms remain in the home country. Also, relocation only of the low-quality firm is a possible outcome of cooperative taxation.
    Keywords: relocation,environmental policy,vertical quality differences,emission tax
    JEL: H23 F18 L13 Q58
    Date: 2018
  10. By: Fonseca, Miguel A.; Li, Yan; Normann, Hans-Theo
    Abstract: Factors facilitating collusion may not successfully predict cartel occurrence: when a factor predicts that collusion (explicit and tacit) becomes easier, firms might be less inclined to set up a cartel simply because tacit coordination already tends to go in hand with supra-competitive profits. We illustrate this issue with laboratory data. We run n-firm Cournot experiments with written cheap-talk communication between players and we compare them to treatments without the possibility to talk. We conduct this comparison for two, four and six firms. We find that two firms indeed find it easier to collude tacitly but that the number of firms does not significantly affect outcomes with communication. As a result, the payoff gain from communication increases with the number of firms, at a decreasing rate.
    Keywords: cartels,collusion,communication,experiments,repeated games
    JEL: L42 C90 C70
    Date: 2018
  11. By: Juan Mao (Department of Accounting, UTSA); Baolei Qi (Xi’an Jiaotong University)
    Abstract: This study investigates why auditors leave one audit firm (and bring their clients) to another and the consequences of such turnover. Using a Chinese sample of 470 auditor-years with turnovers and 7,485 auditor-years without such turnovers from 2001 to 2014, we find that auditors’ professional competency is positively associated with a departure decision in additional to their demographics. Specifically, younger auditors, auditors who are industry specialists, and auditors who audit more clients and have better education background, are more likely to move, suggesting that “rising stars” in the accounting industry are more likely to move from one audit firm to another. However, female auditors, older auditors, and auditors with established status in the current audit firm are less likely to do so. Interestingly, Big 4 signing auditors in China are less likely to move relative to non-Big 4 auditors. We also find that auditors with lower audit quality are less likely to move from one audit firm to another, suggesting that the job market is penalizing auditors for bad quality audits. In terms of consequences, we find that the audit firm is more likely to lose clients whose incumbent auditor moves to another audit firm and it tends to lower audit fees for clients that stay with the audit firm, assign better auditors to them, and treat them more leniently. Our study provides insights that should be of interest to the audit profession, audit firms, and regulators.
    Keywords: auditor turnover, audit partners, individual auditors, audit fees, audit quality, audit switch
    JEL: M42 O15 E24
    Date: 2017–01–09
  12. By: Ilona Babenko; Viktar Fedaseyeu; Song Zhang
    Abstract: We analyze whether CEOs influence their employees’ political choices whether this influence has implications for firm value. We find that employees donate three times more money to CEO-supported political candidates than to other candidates. This relation also holds around CEO departures, including plausibly exogenous departures due to retirement or death. Equity returns are significantly higher when CEO-supported candidates win elections than when employee-supported candidates win. Further, CEO influence is strongest in firms with the largest potential benefits from political participation and firms that explicitly advocate for political candidates. Our results suggest that CEOs are a political force that benefits shareholders
    Keywords: campaign contributions, elections, voting, CEOs, political activism, PACs, political candidates, voter turnout
    JEL: D72 P48 G30
    Date: 2017
  13. By: Francesco Devicienti (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Elena Grinza (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Davide Vannoni (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: This paper investigates the full-time/part-time wage gap by using matched employer-employee data on the entire population of workers and firms in Italy over a 32-year period. Relying on regression models that control for worker, firm, and match fixed effects, we find that part-time work attracts a wage premium compared to full-time work. This finding, coupled with the detrimental effect of part-time work on productivity documented by Devicienti et al. (2018), explains why firms are often unwilling to concede part-time positions to employees asking for them.
    Keywords: Part-time/full-time wage gap, matched employer-employee panel data, multiple fixed effects regressions.
    JEL: J31 J22 J53
    Date: 2018–05
  14. By: Anderson, Ronald W.; Hamadi, Malika
    Abstract: We critically reassess the notion that high liquid asset holding by firms faced with weak investor protection is evidence of managerial rent extraction. We show that firms facing agency problems may establish tight controls over management through concentrated ownership. Using data on Belgian listed firms between 1991 and 2006, we find a strong positive association between ownership concentration and cash holding. This indicates a precautionary motive on the part of the controlling shareholders who highly value control. We also find that firm market valuation is positively affected by the amount of cash held by firms. On the other hand, managerial ownership has no impact. These results are consistent with the hypothesis that firms' owners are pursuing a rational strategy to mitigate agency costs in the face of weak investor protections.
    Keywords: cash holding; ownership concentration; investor protection; control-oriented finance; family firms
    JEL: G30 G32 G34
    Date: 2016–12–01
  15. By: Wagner, Joachim
    Abstract: This paper uses information on all export transactions of goods by German firms with countries outside the European Union from 2009 to 2014 to document for the first time the patterns of export participation at the firm-good-destination level over time and to investigate the link between the duration of export patterns and characteristics of destination countries. It turns out that only some seven percent of all combinations were recorded in each year while more than half of all patterns are only observed once. In line with theoretical hypotheses the likelihood of permanent trade patterns increases within a firm with proximity and market size of destination countries.
    Keywords: temporary exports,permanent exports,transaction level data,Germany
    JEL: F14
    Date: 2018
  16. By: Elena Grinza (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Francois Rycx (Université Libre de Bruxelles, Belgium)
    Abstract: We investigate the impact of sickness absenteeism on productivity by using rich longitudinal matched employer-employee data on Belgian private firms. We deal with endogeneity, which arises from unobserved firm heterogeneity and reverse causality, by applying a modified version of the Ackerberg et al's (2015) control function method, which explicitly removes firm fixed effects. Our main finding is that, in general, sickness absenteeism substantially dampens firm productivity. An increase of 1 percentage point in the rate of sickness absenteeism entails a productivity loss of 0.24%. Yet, we find that the impact is much diversified depending on the categories of workers who are absent and across different types of firms. Our results show that sickness absenteeism is detrimental mainly when absent workers are high-tenure or blue-collar workers. Moreover, they show that sickness absenteeism is harmful mostly to industrial firms, high capital-intensive companies, and small- and medium-sized enterprises. This overall picture is coherent with the idea that sickness absenteeism is problematic when absent workers embed high levels of firm/task-specific (tacit) knowledge, when the work of absent employees is highly interconnected with the work of other employees (e.g., along the assembly line), and when firms face more limitations in substituting temporarily absent workers.
    Keywords: Sickness absenteeism, firm productivity, semiparametric methods for estimating production functions, longitudinal matched employer-employee data.
    JEL: D24 M59 I15
    Date: 2018–05
  17. By: Robert E. Hall
    Abstract: The markup of price over marginal cost reveals market power. The distinction between marginal and average cost is key. Average cost is easy to measure, but the price/average cost ratio understates the price/marginal cost ratio when fixed costs are present. In particular, in free-entry equilibrium, where revenue equals cost, the price/average cost ratio is always one, while the price/marginal cost ratio may be above one. The idea here is to calculate marginal cost as the ratio of the adjusted expenditure on inputs to the adjusted change in output. The first adjustment is to remove the change in expenditure that arises from the changes in input costs. The second adjustment is to remove the change in output attributed to productivity growth. Application to KLEMS productivity data finds a typical markup ratio of 1.3. Markup ratios grew between 1988 and 2015. For mega-firms, the paper uses employment at firms with 10,000+ workers. Substantial heterogeneity occurs across sectors and in growth rates. There is no evidence that mega-firm-intensive sectors have higher price/marginal cost markups, but some evidence that markups grew in sectors with rising mega-firm intensity.
    JEL: D24 L1
    Date: 2018–05
  18. By: Ana Cecília Fieler; Ann Harrison
    Abstract: We propose and provide evidence for a new source of gains from trade: Firms invest in product differentiation to escape import competition. In the data and in the model, these investments are associated with increases in measured productivity, introduction of new goods, and shifts to skill-intensive sectors. Investment in differentiation downstream leads upstream firms to also invest in differentiation. For China, these "downstream tariff" reductions lead to big increases in measured productivity for upstream suppliers. The effect on measured productivity is larger for upstream than for downstream firms, and we explain this difference theoretically through heterogeneous changes in markups.
    JEL: F12 F13 F14
    Date: 2018–04
  19. By: Maria Molina-Domene
    Abstract: This study applies the O-ring theory to explain the firm-size wage premium. It focuses on the joint role of the division of labor and employee characteristics. Including the firm heterogeneity of occupations in a standard wage regression with individual fixed effect shrinks the size coefficient by a third. Labor productivity follows a similar pattern as wages. The intuition is that individuals who work for large firms focus on a limited number of tasks become more efficient and productive, and earn higher wages. Additional predictions originating from the labor specialization hypothesis receive support from the data.
    Keywords: firm size-wage gap, specialization, division of labor
    JEL: J31 L23
    Date: 2018–05
  20. By: Juliane Begenau; Maryam Farboodi; Laura Veldkamp
    Abstract: One of the most important trends in modern macroeconomics is the shift from small firms to large firms. At the same time, financial markets have been transformed by advances in information technology. We explore the hypothesis that the use of big data in financial markets has lowered the cost of capital for large firms, relative to small ones, enabling large firms to grow larger. Large firms, with more economic activity and a longer firm history offer more data to process. As faster processors crunch ever more data – macro announcements, earnings statements, competitors' performance metrics, export demand, etc. – large firms become more valuable targets for this data analysis. Once processed, that data can better forecast firm value, reduce the risk of equity investment, and thus reduce the firm's cost of capital. As big data technology improves, large firms attract a more than proportional share of the data processing, enabling large firms to invest cheaply and grow larger.
    JEL: E2 G1 D8
    Date: 2018–04

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