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on Business Economics |
| By: | Robert Anderton; Barbara Jarmulska; Benedetta Di Lupidio |
| Abstract: | This paper empirically investigates the effects of product market regulation on business churning (i.e. entry and exit of firms) and their impacts on productivity, using annual data for the period 2000-2014 across individual EU countries and sectors. The paper hypothesises that product market reforms, which reduce entry barriers and increase the degree of competition, can allow new firms to enter the market and compete vis-à-vis incumbent firms. The higher competitive pressures can push competitive incumbent firms to innovate while other less productive and inefficient firms may exit. These possible mechanisms can result in improvements to the average industry-level productivity. By using business demography data (i.e, business churning) at the industry and firm size level, we perform a panel data analysis across European countries and sectors to evaluate the effect of product market regulation on firm churning and their impacts on productivity. In particular, we differentiate between micro (less than 10 employees) and other firms given the substantial degree of heterogeneity among these two size classes both in terms of business churning and productivity growth. The paper finds that reducing product market regulation increases business dynamism (i.e. increases the churn rate) by facilitating firms’ entry and exit which, in turn, boosts sectoral total factor productivity. |
| Keywords: | product market regulation; business churning; productivity; EU |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:not:notgep:18/12&r=bec |
| By: | José Tavares; João Amador; Sharmin Sazedj |
| Abstract: | A firm’s optimal choice of a CEO involves a trade-off between hiring newcomers – who take time to profit from learning by doing – and avoiding CEO turnover or opting for internal successions – risking that the old guard fall prey to an experience trap, repeating the same old business practices. When firms are hit by an aggregate economic shock, exogenous, unexpected, and unprecedented in nature, reach, magnitude and persistence, conducting ‘business as usual’ no longer applies and having in office a newcomer – a CEO hired recently from another firm – may turn out to be particularly valuable to efficiently abandon old management practices. We use a unique matched firm-employee dataset for Portuguese firms in the wake of the last economic crisis, to estimate the value of a newcomer CEO, who is by nature prone to avoid the experience trap. During the crisis, firms run by newcomer CEOs outperform those run by high tenured and/or internally promoted CEOs in terms of both value added (GVA) and sales. We estimate a performance gap of approximately 18%, and confirm that no such gap exists prior to the crisis. Firms managed by newcomers are also less likely to fail during the crisis. Propensity Score matching confirms our difference-in-differences results. Our findings are robust to different measures of firm performance, across different samples and specifications, and to the inclusion of several CEO and firm controls, including fixed effects. Finally, we show that newcomer CEOs make different decisions in terms of personnel, expenditure, investment and international trade, attaining higher productivity levels. |
| JEL: | G34 J24 L25 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201821&r=bec |
| By: | Gupta, Apoorva (University of Nottingham); Patnaik, Ila (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy) |
| Abstract: | The positive correlation between firm productivity and export status is well established. This correlation can arise from multiple alternative casual models. We investigate these relationships, harnessing the transition of several firms from serving the domestic market to exporting, in a dataset of Indian firms from 1989 to 2015. Each firm which made the transition is matched against a control which did not. The transitions take place across many years, thus permitting a matched event study in firm outcomes. We find there is self-selection of more productive firms into exporting. Firms that make the transition become bigger, but there is little evidence of learning by exporting, of improvements in productivity right after exporting commences. However, there is evidence of mprovement in productivity of export starters a couple of years before they begin to export. |
| JEL: | F43 L1 D24 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:18/243&r=bec |
| By: | Yao Amber Li (Institute of Emerging Market Studies, Hong Kong University of Science and Technology); Valérie Smeets (Aarhus University); Frédéric Warzynski (Aarhus University) |
| Abstract: | In this paper, we use a detailed production survey in the Chinese manufacturing industry to estimate both revenue and physical productivity and relate our measurements to firms' trade activity. We find that Chinese exporters for largely export oriented products like leather shoes or shirts appear to be less efficient than firms only involved on the domestic market based on the standard revenue productivity measure. However, we show strong positive export premium when we instead consider physical productivity. The simple and intuitive explanation of our results is that exporters charge on average lower prices. We focus more particularly on the role of processing trade and find that price differences are especially large for firms involved in this type of contractual arrangements. We suggest three reasons to explain this result. First, lower prices may simply be due to a mechanical effect as processing trade products are not subject to tariffs nor have to pay VAT. Second, some types of processing trade activities entail that the processing trade firm receives the inputs for free from the contracting firm, therefore artificially depressing the values of inputs or materials used for the firm's production. Third, lower prices may also be a consequence of transfer pricing, as multinationals involved in FDI in China may alter the price charged for inter-company transactions to shift funds within the organization. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:hku:wpaper:201858&r=bec |
| By: | Bana, Sarah (University of California, Santa Barbara); Bedard, Kelly (University of California, Santa Barbara); Rossin-Slater, Maya (Stanford University); Stearns, Jenna (University of California, Davis) |
| Abstract: | California's Disability Insurance (DI) and Paid Family Leave (PFL) programs have become important sources of social insurance, with benefit payments now exceeding those of the state's Unemployment Insurance program. However, there is considerable inequality in program take-up. While existing research shows that firm-specific factors explain a significant part of the growing earnings inequality in the U.S., little is known about the role of firms in determining the use of public leave-taking benefits. Using administrative data from California, we find strong evidence that DI and PFL program take-up is substantially higher in firms with high earnings premiums. A one standard deviation increase in the firm premium is associated with a 57 percent higher claim rate incidence. Our results suggest that changes in firm behavior have the potential to impact social insurance use and thus reduce an important dimension of inequality in America. |
| Keywords: | disability insurance, paid family leave, social insurance, firm premium |
| JEL: | J31 J32 J38 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11882&r=bec |
| By: | Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Andrii Parkhomenko (Universitat Autònoma de Barcelona & Barcelona GSE); Gustavo Ventura (Arizona State University) |
| Abstract: | We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our fi?ndings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% ? more than half of the observed gap between the U.S. and Italy. We ?find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S. |
| Keywords: | Cross-country income differences, managers, distortions, management practices, size distribution, skill investment. |
| JEL: | E23 E24 J24 M11 O43 O47 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2017_1710&r=bec |
| By: | Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Andrii Parkhomenko (Universitat Autònoma de Barcelona & Barcelona GSE); Gustavo Ventura (Arizona State University) |
| Abstract: | We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our fi?ndings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% ? more than half of the observed gap between the U.S. and Italy. We ?find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S. |
| Keywords: | Cross-country income differences, managers, distortions, management practices, size distribution, skill investment. |
| JEL: | E23 E24 J24 M11 O43 O47 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2018_1710&r=bec |
| By: | Sandvik, Jason; Saouma, Richard; Seegert, Nathan; Stanton, Christopher |
| Abstract: | Firms rarely cut compensation, so little is known about the after-effects when compensation reductions do occur. We use commission reductions at a sales firm to estimate how work effort and turnover change. In response to an 18% decline in sales commissions, corresponding to a 7% decline in median take-home pay, we find turnover increases for the most productive workers. We detect limited effort responses. Turnover and effort responses do not differ based on workers' survey replies regarding expectations of firm fairness or future promotion. The findings indicate that adverse selection concerns on the extensive margin of retaining workers drive the empirical regularity that firms rarely reduce compensation. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13242&r=bec |
| By: | Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten |
| Abstract: | The non-state manufacturing sector has been the engine of China's economic transformation. Up through the mid-1990s, the sector exhibited large regional differences; between 1995 and 2004 we observe rapid convergence in terms of productivity, wages, and new firm start-up rates. To analyze the drivers of this behavior, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and a novel entry barrier. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance across prefectures and over time. Entry barriers turn out to be the salient factor explaining performance differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector. Thus, the downsizing of the state sector after 1997 may be important in explaining the regional convergence and manufacturing growth after 1995. |
| Keywords: | Chinese economic growth; SOEs; fi rm entry; entry barriers; capital wedges; output wedges; SOE reform |
| JEL: | O11 O14 O16 O40 O53 P25 R13 D22 D24 E24 |
| Date: | 2018–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-622&r=bec |
| By: | Pau Roldán (Banco de España); Sonia Gilbukh (Cuny Baruch College) |
| Abstract: | This paper analyzes the macroeconomic implications of customer capital accumulation at the firm level. We build an analytically tractable search model of firm dynamics in which firms compete for customers by posting pricing contracts in the product market. Cross-sectional price dispersion emerges in equilibrium because firms of different sizes and productivities use different pricing strategies to strike a balance between attracting new customers and exploiting incumbent ones. Using micro-pricing data from the U.S. retail sector, we calibrate the model to match moments from the cross-sectional distribution of sales and prices, and use our estimated model to explain sluggish aggregate dynamics and cross-sectional heterogeneity in the response of markups to aggregate shocks. We find that there is incomplete price pass-through leading to procyclicality in the average markup, with smaller firms being more responsive to shocks than larger firms. |
| Keywords: | customer capital, product market frictions, directed search, firm dynamics, dynamic contracts, price dispersion |
| JEL: | D21 D83 E2 L11 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1838&r=bec |
| By: | Khaldoon Al Daoud (Yarmouk University) |
| Abstract: | Recently, the audit committees and boards of directors have been considered to be corporate governance mechanisms that can play key roles in mitigating earnings management practices. This study?s purpose is to explore the impact of the board of directors (i.e., size, CEO duality, independence and financial expertise and knowledge) and the presence of an audit committee with earnings management practices in Jordanian firms. The study used the leverage ratio as a control variable. The sample covered industrial firms listed in the Amman Stock Exchange from the years 2014-2016. This study used multiple regression in determining if the board of directors and the audit committee affect earnings management practices. The study revealed that the presence of an audit committee negatively affected the earnings management practice in industrial Jordanian firms. This study suggested that characteristics of the board of directors, namely, independence and CEO duality, significantly influenced the practices of earnings management Furthermore, the findings indicate that separating the position of CEO and chairman along with more independent board members plays an increasingly important role in preventing earnings management practices by ensuring the effective monitoring of management. The study recommends extending such research to offer a more comprehensive awareness of earnings management in emerging capital markets using new variables of corporate governance. |
| Keywords: | Earnings management, board of director, audit committee and Jordan. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:ibmpro:6809892&r=bec |
| By: | Emin Dinlersoz; Sebnem Kalemli-Ozcan; Henry Hyatt; Veronika Penciakova |
| Abstract: | We study the leverage of U.S. firms over their life-cycle and implications for firm growth and responses to shocks. We use a new dataset that matches private firms’ balance sheets to U.S. Census Bureau’s Longitudinal Business Database (LBD) for the period 2005–2012. A number of stylized facts emerge. First, firm size and leverage are strongly positively correlated for private firms, both in the cross section of firms and over time for a given firm. For public firms, there is a weak negative relation between leverage and size. Second, young private firms borrow more, but firm age has no relation to public firms’ leverage. Third, while private firms switch from debt to equity financing as they age, public firms slightly reduce equity financing as they age. Building on this “normal times” benchmark and using the “Great Recession” as a shock to financial conditions, we show that, for private firms, firm size can serve as a good predictor of financial constraints. During the Great Recession, leverage declines for private firms, but not for public firms. We also provide evidence that private firms’ growth is positively related to leverage, as they finance their growth during normal times with short-term borrowing, whereas the relationship between leverage and firm growth is negative for public firms. These results suggest that public firms are not financially constrained during normal times or during crisis, but private firms are. |
| JEL: | E23 G32 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25226&r=bec |