nep-bec New Economics Papers
on Business Economics
Issue of 2018‒09‒10
sixteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Effects of Entry in Oligopolistic Trade with Bargained Input Prices By Naylor, Robin; Soegaard, Christian
  2. Identifying Labor Market Sorting with Firm Dynamics By Andreas Gulyas
  3. Discrimination, Managers, and Firm Performance: Evidence from "Aryanizations" in Nazi Germany* By Huber, Kilian; Lindenthal, Volker; Waldinger, Fabian
  4. Asset Price Bubbles and the Distribution of Firms By Haozhou Tang
  5. Wealth and the principal-agent matching By Paulo Fagandini
  6. Firm Sales and Export Behavior: Evidence on the Role of Firm Markups, Market Size, and Market Penetration Costs By Jafari, Yaghoob; Heckelei, Thomas
  7. Upstream Bundling and Leverage of Market Power By de Cornière, Alexandre; Taylor, Greg
  8. Disruptions, Resilience and Performance of Emerging Market Entrepreneurs: Evidence from Uganda By Anderson, Stephen J.; Kundu, Amrita; Ramdas, Kamalini
  9. Production Chains, Exchange Rate Shocks, and Firm Performance By LI Zhigang; WEI Shang-Jin; ZHANG Hongyong
  10. Reviving American Entrepreneurship? Tax Reform and Business Dynamism By Sedlacek, Petr; Sterk, Vincent
  11. Expectation Formation and Firm Activities: New evidence from a business outlook survey in Japan By CHEN Cheng; SENGA Tatsuro; SUN Chang; ZHANG Hongyong
  12. Voluntary disclosure under dynamic moral hazard By Shiming Fu; Giulio Trigilia
  13. Exporting a Bit Faster: The Long-Run Performance of Born Globals in Computing By Ferguson, Shon; Henrekson, Magnus
  14. Labour share developments over the past two decades: The role of technological progress, globalisation and “winner-takes-most” dynamics By Cyrille Schwellnus; Mathilde Pak; Pierre-Alain Pionnier; Elena Crivellaro
  15. Financial Frictions and Export Dynamics in Large Devaluations By David Kohn; Fernando Leibovici; Michal Szkup
  16. Gender Wage Gap at the Top, Job Inflexibility and Product Market Competition By Heyman, Fredrik; Norbäck, Pehr-Johan; Persson, Lars

  1. By: Naylor, Robin; Soegaard, Christian
    Abstract: Firms which face the threat of import competition from foreign rivals are conventionally seen as favouring import protection. We show that this is not necessarily the case when domestic firms’ input prices are determined endogenously. In a framework where the input price is determined through bargaining with an (upstream) input supplier, the relationship between a domestic (downstream) firm’s profits and the number of foreign competitors depends on trade costs. If trade costs are sufficiently high, then an increase in the number of foreign entrants can raise the profits of a downstream firm in a home market characterised by Cournot competition. The intuition for this result is that increased product market competition through the entry of foreign firms is mirrored by profit-enhancing moderation of the bargained input price. We examine a number of tariff and non-tariff barriers to international trade and identify conditions under which import-competing firms will favour the removal of barriers to foreign competition.
    Keywords: Financial Economics
    Date: 2018–01–15
  2. By: Andreas Gulyas (University of Mannheim)
    Abstract: Studying wage inequality requires understanding how workers and firms match. I propose a novel strategy to identify the complementarities in production between unobserved worker and firm attributes, based on the idea that positive (negative) sorting implies that firms upgrade (downgrade) their workforce quality when they grow in size. I use German matched employer-employee data to estimate a search and matching model with worker-firm complementarities, job-to-job transitions, and firm dynamics. The relationship between changes in workforce quality and firm growth rates in the data informs the strength of complementarities in the model. Thus, this strategy bypasses the lack of identification inherent to environments with constant firm types. I find evidence of negative sorting and a significant dampening effect of worker-firm complementarities on wage inequality. Worker and firm heterogeneity, differential bargaining positions, and sorting contribute 71%, 20%, 32% and -23% to wage dispersion, respectively. Reallocating workers across firms to the first-best allocation without mismatch yields an output gain of less than one percent.
    Date: 2018
  3. By: Huber, Kilian; Lindenthal, Volker; Waldinger, Fabian
    Abstract: We study whether antisemitic discrimination in Nazi Germany had economic effects. Specifically, we investigate how the forced removal of Jewish managers affected large German firms. We collect new data from historical sources on the characteristics of senior managers, stock prices, dividends, and returns on assets for firms listed on the Berlin Stock Exchange. After the removal of the Jewish managers, the senior managers at affected firms had fewer university degrees, less experience, and fewer connections to other firms. The loss of Jewish managers significantly and persistently reduced the stock prices of affected firms for at least 10 years after the Nazis came to power. We find particularly strong reductions for firms where the removal of the Jewish managers led to large decreases in managerial connections to other firms and in the number of university-educated managers. Dividend payments and returns on assets also declined. A back-of-the-envelope calculation suggests that the aggregate market valuation of firms listed in Berlin fell by 1.78 percent of German GNP. These findings imply that discrimination can lead to significant economic losses and that individual managers can be key to the success of firms.
    Keywords: "Aryanizations"; discrimination; firms; Managers; Nazi Germany
    JEL: G30 J7 J71 N24 N34 N8
    Date: 2018–07
  4. By: Haozhou Tang (Bank of Mexico)
    Abstract: This paper studies the macroeconomic effects of asset bubbles from the perspective of firms. I introduce bubbles into a model with firm heterogeneity and firm entry and exit: in a bubbly equilibrium, the price of a firm contains a fundamental component, which represents the net present value of profits, and a bubble component. I show that bubbles act as subsidies to new firms and have the following implications: i) bubbles lower the average productivity and profitability of new firms; ii) bubbles increase the number of firms, wages, and aggregate output; iii) along transition dynamics, bubbles subsidize new firms rather than incumbents, aggravating misallocation and therefore depressing aggregate productivity. The model can be used to discriminate the alternative explanations of business cycles, like shocks to productivity, and shocks to financial frictions. Firm-level evidence suggests that the Spanish economic expansion before the global financial crisis can be well interpreted as a consequence of a bubble boom, and the recession as an outcome of a bubble crash.
    Date: 2018
  5. By: Paulo Fagandini
    Abstract: I study the role the agent's wealth plays in the principal-agent matching with moral hazard and limited liability. I consider wealth and talent as the agent's type, and size as the firm's (principal's) type. Because utility is not perfectly transferable in this setup, I use generalized increasing differences and find that wealthier agents match with bigger firms, when talent is homogeneous among them, whereas for equally wealthy agents, more talented agents will match with bigger firms. I describe economic conditions over types such that pairs of higher types will write contracts in which the agent obtains more than the information rents, through a higher bonus, increasing the expected surplus. Finally, I provide an example in which wealth is distributed among agents in such a way that it reverses the standard result of positive assortative matching between talent and firm size. JEL codes: D86, D82, C78, J33, M12
    Keywords: moral hazard, asymmetric information, matching, non transferable utility
    Date: 2017
  6. By: Jafari, Yaghoob; Heckelei, Thomas
    Keywords: Agricultural and Food Policy, International Relations/Trade
    Date: 2017–12–03
  7. By: de Cornière, Alexandre; Taylor, Greg
    Abstract: Motivated by the recent Google-Android antitrust case, we present a novel rationale for bundling by a multiproduct upstream firm. Consider a market where downstream firms procure components from upstream suppliers. U1 is the only supplier of component A, but faces competition for component B. Suppose that component A increases demand for the downstream product and that contractual frictions induce positive wholesale markups. By bundling A and B, U1 reduces its B-rivals' willingness to offer slotting fees to the downstream firm, thereby allowing U1 to capture more of the industry profit. Bundling harms the downstream firm and the B rivals, and can be anticompetitive.
    Keywords: Bundling; Exclusion; Vertical Relations
    JEL: L1 L4
    Date: 2018–07
  8. By: Anderson, Stephen J. (Stanford University); Kundu, Amrita (London Business School); Ramdas, Kamalini (London Business School)
    Abstract: We examine the effect of firm-specific business disruptions on the performance of small firms in emerging markets. We study the impact of both managerial disruptions (which result in the absence of the entrepreneur-owner or more broadly a key manager) and operational disruptions (e.g., supply glitches). We examine the effectiveness of resilience strategies in buffering against disruptions. We propose the use of relational resilience--i.e., the availability of suitable cover for the absent entrepreneur / key manager--as a measure of buffering against managerial disruptions. We also examine whether resource resilience (e.g., maintaining safety stock) helps recover from operational disruptions. In the absence of publicly available data, we hand-build a panel dataset by interviewing 646 randomly selected small firms over four time periods in Kampala, Uganda between June 2015 and November 2016. We find that disruptions are highly prevalent and have a statistically and economically significant effect on firm performance. When a firm faces multiple exogenous and severe disruptions in a six month period, its monthly sales go down by 13.7% (p = 0.013) and sales growth reduces by 17.1% on average over the six months (p = 0.070). Importantly, we find that both relational and resource resilience significantly buffer against the negative impact of disruptions; in some cases firms with high resilience are able to completely overcome the negative effect of disruptions on sales and sales growth. We discuss implications for policy makers and for large multi-nationals that buy from or sell to small emerging market firms.
    Date: 2018–07
  9. By: LI Zhigang; WEI Shang-Jin; ZHANG Hongyong
    Abstract: Using unique Japanese firm-level production network data combined with international trade data, we examine the upstream/downstream propagation effects of exchange rate shocks on the performance of indirect exporters/importers. Indirect exporters (importers) are defined as firms which do not export (import) by themselves but supply to (buy from) at least one exporting (importing) firm. We construct firm-specific export and import effective exchange rates to take account of the variations of exchange rate exposure across trading firms. We find significant and robust responses in sales and profitability of indirect exporters to exchange rate shocks of downstream exporting firms, which suggests the upstream propagation effect of exchange rate shocks. Both the sales and profitability of the indirect exporters improved significantly with yen depreciation in downstream industries. However, on the other hand, there is weak evidence on the responses of indirect importers to exchange rate exposure of upstream importing firms. Furthermore, the responses in sales and profitability are heterogeneous among direct and indirect exporters/importers by relative firm size and upstreamness in the production chains. Our results suggest that the stabilization of exchange rates is crucial to firm performance, especially to the small and medium enterprises engaging in indirect exporting, from the perspective of supply chains.
    Date: 2018–09
  10. By: Sedlacek, Petr; Sterk, Vincent
    Abstract: The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous firms model, we investigate the long-run effects of such tax reforms on firm dynamics. We find that they can substantially increase business dynamism, potentially off-setting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform stimulates firm entry, leading to an increase in labor demand and wages, which in turn makes firm selection more stringent. Related to this is a large boost of the number of firms and of aggregate output, investment and employment.
    JEL: D21 E22 E24 H25
    Date: 2018–07
  11. By: CHEN Cheng; SENGA Tatsuro; SUN Chang; ZHANG Hongyong
    Abstract: This paper uses the Japanese Business Outlook Survey to examine the role of expectations in shaping business investment and hiring plans. We combine qualitative assessments of both macro- and micro-level business conditions and information of firm-level outcomes such as sales and investment. We then document five new facts concerning firm expectations. First, forecasts made earlier are less precise and more optimistic. Second, forecasted sales are less volatile than realized sales adjusted based on realized sales in the past. Third, volatility of firms' sales growth and variance of their forecast errors co-move over the business cycles. Fourth, firms' forecasts of micro- and macro-level business conditions are positively correlated with their investment and hiring plans. Firms' assessments about micro-level business conditions have larger impacts on their investment and hiring plans than their assessments about macro-level business conditions, and these results are more pervasive among smaller firms. Finally, firms' investment and hiring plans are positively correlated with past sales growth. In particular, if such sales growth is higher than the forecast, firms adjust their investment and hiring plans upward. These results suggest both an extrapolative and forward-looking structure of business outlook and plans.
    Date: 2018–09
  12. By: Shiming Fu (University of Rochester); Giulio Trigilia (University of Rochester)
    Abstract: We introduce voluntary disclosure in a dynamic agency model with non-verifiable cash flows. Evidence reduces the use of high powered cash incentives, and the optimal contract features ``pay for verifiable bad luck''. The firm solvency and liquidity dynamics can be implemented by long-term debt, equity, and a credit line with interest rate contingent on both the disclosed evidence and the reported cash flow. Against the conventional wisdom, more frequent expected disclosure might lower firm value ex ante. As more evidence becomes available, two countervailing forces shape the solvency and liquidity dynamics: while firm value becomes more persistent after disclosure of bad news, the firm faces higher interest rate charges both in low states (absent disclosure), and when cash flows are high. For low profitability firms, the two effects must induce a non-monotonicity in firm value: more widespread evidence leads to less firms surviving in the long run.
    Date: 2018
  13. By: Ferguson, Shon (Research Institute of Industrial Economics (IFN)); Henrekson, Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: Policymakers in several countries have recently taken steps to promote the rapid export expansion of high-tech small- and medium-sized enterprises (SMEs). The goal of these policies has been to create successful export-intensive firms, which are often referred to as born globals. To the best of our knowledge, we are the first to study born globals in computing using firm-level register data, which cover the universe of firms in a particular country and sector. Using data on all Swedish computing startups founded 2007–2015, we find a systematic positive relationship between the propensity of a computing firm to reach customers globally via digital platforms and its long-run employment growth relative to domestically-oriented computer firms. We find mixed evidence that born globals in computing grow faster in terms of sales or value added. Our analysis also indicates that very few computing firms fit the profile of born globals; only 15 percent of the 250 largest computing employers in 2015 were born globals. Moreover, only 1.5 percent of computing startups founded 2007–2015 were computer game publishers, which arguably have the highest propensity to be born global. Thus, although we find positive born global effects at the firm level, policymakers must be aware that encouraging more born globals need not necessarily lead to large benefits for the overall economy.
    Keywords: Born globals; Computing industry; Exporting; Firm growth; Globalization; Job creation
    JEL: F14 F23 L25 M13
    Date: 2018–08–10
  14. By: Cyrille Schwellnus; Mathilde Pak; Pierre-Alain Pionnier; Elena Crivellaro
    Abstract: Over the past two decades, real median wage growth in many OECD countries has decoupled from labour productivity growth, partly reflecting declines in labour income shares. This paper analyses the drivers of labour share developments using a combination of industry- and firm-level data. Technological change in the investment goods-producing sector and greater global value chain participation have compressed labour shares, but the effect of technological change has been significantly less pronounced for high-skilled workers. Countries with falling labour shares have witnessed both a decline at the technological frontier and a reallocation of market shares toward “superstar” firms with low labour shares (“winner-takes-most” dynamics). The decline at the technological frontier mainly reflects the entry of firms with low labour shares into the frontier rather than a decline of labour shares in incumbent frontier firms, suggesting that thus far this process is mainly explained by technological dynamism rather than anti-competitive forces.
    Keywords: global value chains, Labour share, skills, superstar firms
    JEL: D33 J24 L11 O33
    Date: 2018–09–04
  15. By: David Kohn (Universidad Catolica de Chile); Fernando Leibovici (Federal Reserve Bank of St. Louis); Michal Szkup (The University of British Columbia)
    Abstract: We study the role of financial frictions and balance-sheet effects in account- ing for the dynamics of aggregate exports, output, and investment in large devaluations. We investigate a small open economy with heterogeneous firms and endogenous export decisions, in which firms face financing constraints and debt can be denominated in foreign units. We find that these channels can explain only a small fraction of the dynamics of exports observed in the data since financially-constrained exporters increase exports by reallocating sales across markets. We show analytically the role of this mechanism on exports adjustment and document its importance using plant-level data.
    Date: 2018
  16. By: Heyman, Fredrik; Norbäck, Pehr-Johan; Persson, Lars
    Abstract: Research show that women are disadvantaged in inflexible occupations. We show that this will imply that female managers are on average more skilled than male managers. Due to the higher hurdles faced by women, only the most skilled among them will pursue a management career. This implies that female managers will, on average, be more beneficial for the firm when product market competition is intense. Using detailed matched employee-employer data, we find that (i) more intense product market competition leads to relatively higher wages for female managers and (ii) the share of female managers is higher in firms in more competitive industries.
    Keywords: Career; Competition; Gender wage-gap; Job Inflexibility; Management
    JEL: J7 L2 M5
    Date: 2018–07

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