nep-bec New Economics Papers
on Business Economics
Issue of 2018‒12‒24
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Role of Corporate Saving over the Business Cycle: Shock Absorber or Amplifier? By Xiaodan Gao; Shaofeng Xu
  2. Gender Differences within the Firm: Evidence from Two Million Travelers By Donna, Javier D.; Veramendi, Gregory
  3. Firm Leverage and Regional Business Cycles By Giroud, Xavier; Mueller, Holger M
  4. Born to be an entrepreneur? How cultural origin affects entrepreneurship By Katharina Erhardt; Simon Haenni
  5. Very Simple Markov-Perfect Industry Dynamics: Empirics By Abbring, Jaap H.; Campbell, Jeffrey R.; Tilly, Jan; Yang, Nan
  6. Classifying Firms with Text Mining By Giacomo Caterini
  7. The Abolition of Immigration Restrictions and the Performance of Firms and Workers: Evidence from Switzerland By Andreas Beerli; Jan Ruffner; Michael Siegenthaler; Giovanni Peri
  8. FDI and International Collusion By Uday Bhanu Sinha
  9. A progressive consumption tax: an important instrument for stabilizing business cycles, or just an exotic idea? By Vasilev, Aleksandar
  10. Short-time work in the Great Recession: firm-level evidence from 20 EU countries By Lydon, Reamonn; Mathä, Thomas; Millard, Stephen
  11. Emerging market multinational companies and internationalization: the role of home country urbanization By Estrin, Saul; Nielsen, Bo B.; Nielsen, Sabina
  12. Fiscal Stimulus Impact on Firms' Profitability During the Global Financial Crisis By Carolina Correa-Caro; Leandro Medina; Marcos Poplawski-Ribeiro; Bennett W Sutton

  1. By: Xiaodan Gao; Shaofeng Xu
    Abstract: We document countercyclical corporate saving behavior with the degree of countercyclicality varying nonmonotonically with firm size. We then develop a dynamic stochastic general equilibrium model with heterogeneous firms to explain the pattern and study its implications for business cycles. In the presence of financial frictions and fixed operating costs, a persistent negative productivity shock signals low future income and prompts firms to hold more cash in order to preserve financial flexibility and maintain normal operations. This countercyclicality exhibits a hump-shaped relation to firm size. Compared with mediumsized firms, small firms have a higher marginal product of capital and thus better investment opportunities, which compete for resources with cash, while large firms have more pledgeable assets and demand less cash. We find that, on average, firms accumulate cash by cutting investment and employment in recessions, which reduces aggregate output and increases economic fluctuations. Corporate saving, therefore, amplifies aggregate shocks.
    Keywords: Business fluctuations and cycles, Economic models
    JEL: E20 E22 E32 G31 G32
    Date: 2018
  2. By: Donna, Javier D.; Veramendi, Gregory
    Abstract: We document gender differences in the behavior of similar workers within a firm when they book business air travel. We show that women pay consistently less per ticket than men, after accounting for a large set of covariates that include the characteristics of the traveler, the routes and class they travel on, the firms that employ them, and the position that the traveler holds in the firm. A large proportion of the lower fares paid by women is explained by women booking flights earlier than men. We find significant variation in gender differences across the regions of the world. Using country-level data on preference differences, we show that gender differences in both positive and negative reciprocity are an important factor associated with the documented gender differences. In particular, negative reciprocity alone is able to explain the gender difference in paid fare: women (men) are less (more) willing to trade the firms’ money for their own utility when they feel they have been treated unfairly. The documented gender differences have both important monetary implications for firms and implications for the role of morale within the firm.
    Keywords: Gender differences; worker gender differences
    JEL: D91 F00 J16 M50
    Date: 2018–08–06
  3. By: Giroud, Xavier; Mueller, Holger M
    Abstract: This paper shows that buildups in firm leverage predict subsequent declines in aggregate regional employment. Using confidential establishment-level data from the U.S. Census Bureau, we exploit regional heterogeneity in leverage buildups by large U.S. publicly listed firms, which are widely spread across U.S. regions. For a given region, our results show that increases in firms' borrowing are associated with "boom-bust" cycles: employment grows in the short run but declines in the medium run. Across regions, our results imply that regions with larger buildups in firm leverage exhibit stronger short-run growth, but also stronger medium-run declines, in aggregate regional employment. We obtain similar results if we condition on national recessions-regions with larger buildups in firm leverage prior to a recession experience larger employment losses during the recession. When comparing regional firm and household leverage growth, we find qualitatively similar patterns for both. Finally, we find that regions whose firm leverage growth comoves more strongly also exhibit stronger comovement in their regional business cycles.
    Keywords: Business Cycles; Firm leverage
    JEL: E24 E32 G32
    Date: 2018–12
  4. By: Katharina Erhardt; Simon Haenni
    Abstract: Persistent differences in entrepreneurial activity between regions and countries remain unexplained. This paper argues that cultural heritage is an important determinant. We exploit a quasi-experimental setting comparing entrepreneurial activities of individuals with different cultural ancestry from within Switzerland but who live in the same municipality today and are hence exposed to the same economic and institutional environment. We find that individuals with cultural origin on the German-speaking side of the Swiss language border found 20% more firms than their counterparts with cultural origin on the French-speaking side ─ no matter if they currently live in the German-speaking or French-speaking region. These newly founded firms are identical in terms of survival rate, industry composition, legal form, and firm size, independent of the cultural origin of firm founders. A model of entrepreneurial choice suggests that the empirical patterns of firm entry and performance are more likely driven by differences in risk aversion or preferences for entrepreneurship rather than by skill.
    Keywords: Culture, entrepreneurship, natural experiment
    JEL: D22 L26 Z10
    Date: 2018–12
  5. By: Abbring, Jaap H. (Tilburg University); Campbell, Jeffrey R. (Federal Reserve Bank of Chicago); Tilly, Jan (QuantCo, Inc.); Yang, Nan (National Univerrsity of Singapore)
    Abstract: This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters, and we implement a nested fixed point procedure for its estimation. Estimates from County Business Patterns data on U.S. local cinema markets point to tough local competition. Sunk costs make the industry's transition following a permanent demand shock last 10 to 15 years.
    Keywords: demand uncertainty; dynamic oligopoly; firm entry and exit; nested fixed point; estimator; sunk costs; toughness of competition; counterfactual policy analysis; Markov process
    JEL: C25 C73 L13
    Date: 2018–07–24
  6. By: Giacomo Caterini
    Abstract: Statistics on the births, deaths and survival rates of firms are crucial pieces of information, as they enter as an input in the computation of GDP, the identification of each sector’s contribution to the economy, and the assessment of gross job creation and destruction rates. Official statistics on firm demography are made available only several months after data collection and storage, however. Furthermore, unprocessed and untimely administrative data can lead to a misrepresentation of the life-cycle stage of a firm. In this paper we implement an automated version of Eurostat’s algorithm aimed at distinguishing true startup endeavors from the resurrection of pre-existing but apparently defunct firms. The potential gains from combining machine learning, natural language processing and econometric tools for pre- processing and analyzing granular data are exposed, and a machine learning method predicting reactivations of deceptively dead firms is proposed.
    Keywords: Business Demography; Classification; Text Mining
    JEL: C01 C52 C53 C80 G33 L11 L25 L26 M13 R11
    Date: 2018
  7. By: Andreas Beerli; Jan Ruffner; Michael Siegenthaler; Giovanni Peri
    Abstract: We study a reform that granted European cross-border workers free access to the Swiss labor market. Our Differences-in-Differences estimations leverage the fact that regions close to the border were affected more intensely and earlier. The greater availability of cross-border workers increased their employment but also wages and possibly employment of highly educated native workers although the new cross-border workers were also highly educated. The reason is a simultaneous increase in labor demand in skill-intensive firms: the reform increased the size, productivity, innovation performance of some incumbent firms, attracted new firms, and created opportunities for natives to pursue managerial jobs.
    JEL: F22 J22 J24 J61
    Date: 2018–11
  8. By: Uday Bhanu Sinha (Department of Economics, Delhi School of Economics)
    Abstract: We develop a supergame model of collusion between price-setting oligopolists when the trade between countries involves per-unit trade cost and FDI requires a fixed cost of setting up a subsidiary in a foreign country. We demonstrate that cross hauling of FDI may facilitate collusion based on territorial allocation of markets. Whenever FDI is not helpful for sustaining collusion, the collusive arrangement involves no FDI at all. With asymmetric number of home firms or with different sizes of the markets, FDI may facilitate international collusion at lower levels of trade costs and thus our analysis also throws some light on the empirical puzzle regarding the trade liberalisation and FDI flows observed since the 1990s.
    Keywords: Foreign direct investment, collusion, multimarket contact, cross hauling of FDI, price competition, homogenous good.
    JEL: D43 F12 F15 F21 F23 L13 L41
    Date: 2018–12
  9. By: Vasilev, Aleksandar
    Abstract: We introduce progressive consumption taxation into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of of progressive taxation of consumption expenditures for the stabilization of cyclical fluctuations in Bulgaria. We find the quantitative effect of such a tax to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles,progressive consumption taxation,Bulgaria
    JEL: E24 E32
    Date: 2018
  10. By: Lydon, Reamonn (Central Bank of Ireland); Mathä, Thomas (Banque Centrale du Luxembourg); Millard, Stephen (Bank of England)
    Abstract: Using firm-level data from a large-scale European survey among 20 countries, we analyse the determinants of firms using short-time work (STW). We show that firms are more likely to use STW in case of negative demand shocks. We show that STW schemes are more likely to be used by firms with high degrees of firm-specific human capital, high firing costs, and operating in countries with stringent employment protection legislation and a high degree of downward nominal wage rigidity. STW use is higher in countries with formalised schemes and in countries where these schemes were extended in response to the recent crisis. On the wider economic impact of STW, we show that firms using the schemes are significantly less likely to lay off permanent workers in response to a negative shock, with no impact for temporary workers. Relating our STW take-up measure in the micro data to aggregate data on employment and output trends, we show that sectors with a high STW take-up exhibit significantly less cyclical variation in employment.
    Keywords: Firms; survey; crisis; short-time work; wages; recession
    JEL: C25 E24 J63 J68
    Date: 2018–12–07
  11. By: Estrin, Saul; Nielsen, Bo B.; Nielsen, Sabina
    Abstract: We develop a multilevel theoretical framework for investigating the role of home country urbanization for emerging market multinational companies' (EMNCs) international expansion. We propose that more urbanized home environments directly increase EMNC's proclivity to internationalize and moderate the effects of firm intangible and tangible resources. The empirical counterpart studies 592 EMNCs from 18 different countries in 2010 and an unbalanced panel of a subsample of these firms over the period 2006–2010. Our hypotheses are confirmed in both datasets. We find that while urbanization complements firm financial resources when expanding abroad, it appears to substitute to some extent for internal R&D capabilities. Our findings further our understanding of the drivers of internationalization of EMNCs.
    Keywords: Emerging market multinationals; Internationalization; Home country effects; Urbanization; Financial strength; Cross-classified; Multilevel modeling
    JEL: N0 J50
    Date: 2017–09–01
  12. By: Carolina Correa-Caro; Leandro Medina; Marcos Poplawski-Ribeiro; Bennett W Sutton
    Abstract: Using financial statement data from the Thomson Reuter’s Worldscope database for 22,333 non-financial firms in 52 advanced and emerging economies, this paper examines how fiscal stimulus (i.e., changes in structural deficit) interacted with sectoral business cycle sensitivity affected corporate profitability during the recovery period of the global financial crisis (GFC). Using cross-sectional analyses, our findings indicate that corporate profitability improved significantly after the GFC fiscal stimulus, especially in manufacturing, utilities and retail sectors. Firm size and leverage are also found to be significant in explaining changes in corporate profitability.
    Date: 2018–11–28

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