nep-bec New Economics Papers
on Business Economics
Issue of 2019‒02‒04
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The inverted-U relationship between credit access and productivity growth By Aghion, Philippe; Bergeaud, Antonin; Cette, Gilbert; Lecat, Rémy; Maghin, Hélène
  2. How Responsive are Wages to Demand within the Firm? Evidence from Idiosyncratic Export Demand Shocks By Andrew Garin; Filipe Silvério
  3. Firms and Economic Performance: A View from Trade By Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
  4. Corporate Social Responsibility and Tax Avoidance By Laszlo Goerke
  5. Labor specialization as a source of market frictions By Molina-Domene, Maria
  6. The Origins of Firm Heterogeneity: A Production Network Approach By Andrew B. Bernard; Emmanuel Dhyne; Glenn Magerman; Kalina B. Manova; Andreas Moxnes
  7. Shareholder Activism Externalities By Li, Zhan
  8. Firm Wages in a Frictional Labor Market By Rudanko, Leena
  9. Are Labor Unions Important for Business Cycle Fluctuations: Lessons from Bulgaria (1999-2016) By Aleksandar Vasilev
  10. Time-inconsistent Output Subsidy/Tax Policies in Free-entry Mixed Markets By Chen, Jiaqi; Lee, Sang-Ho; Muminov, Timur
  11. Technology, market structure and the gains from trade By Impullitti, Giammario; Licandro, Omar; Rendhal, Pontus
  12. Benign neglect of covenant violations: Blissful banking or ignorant monitoring? By Colonnello, Stefano; Koetter, Michael; Stieglitz, Moritz
  13. Entering a foreign market: Exports, FDI or strategic alliance? By Morasch, Karl
  14. In-house and arm’s length: productivity heterogeneity and variation in organizational form By Kalnins, Arturs; Lin, Stephen F.; Thomas, Catherine
  15. Testing for Asymmetric Employer Learning and Statistical Discrimination By Suqin Ge; Andrea Moro; Beibei Zhu
  16. Under Pressure? Assessing the Roles of Skills and Other Personal Resources for Work-Life Strains By Blunch, Niels-Hugo; Ribar, David C.; Western, Mark
  17. Predicting innovative firms using web mining and deep learning By Kinne, Jan; Lenz, David

  1. By: Aghion, Philippe; Bergeaud, Antonin; Cette, Gilbert; Lecat, Rémy; Maghin, Hélène
    Abstract: In this paper we identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation-base growth with credit constraints, where the above two counteracting effects generate an inverted-U relationship between credit access and productivity growth. Then we test our theory on a comprehensive French manufacturing firm-level dataset. We first show evidence of an inverted-U relationship between credit constraints and productivity growth when we aggregate our data at sectoral level. We then move to firm-level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experienced lower exit rates, particularly the least productive firms among them. To confirm our results, we exploit the 2012 Eurosystem's Additional Credit Claims (ACC) program as a quasiexperiment that generated exogenous extra supply of credits for a subset of incumbent firms.
    Keywords: inverted-u relationship; credit; eurosystem
    JEL: J1 F3 G3
    Date: 2018–12
  2. By: Andrew Garin; Filipe Silvério
    Abstract: How much do employees’ wages directly reflect their employer’s labor demand, rather than competition from other employers in the labor market? We test the wage incidence of product demand shocks by studying a quasi-experiment that idiosyncratically shocked individual firms’ export demand without systematically affecting similar firms’ product or labor demand. Our shocks measure how much Portuguese exporters’ sales were impacted by where—but not what—they had been selling before the recession of 2008. These shocks predict changes in output, payroll, and hiring at affected firms, but not at rival employers in the same labor market segment. An idiosyncratic shock that changes output by 10 percent in the medium-run causes wages of pre-2008 employees to change proportionally by 1.5 percent, relative to trend. Consistent with a simple framework, we find that these pass-through effects are larger in industries with lower employee turnover rates and in firms with higher pay premiums. These findings offer evidence that heterogeneous firm dynamics can plausibly generate substantial cross-sectional wage dispersion, but only in less-fluid labor markets.
    JEL: F16 J23 J31
    Date: 2019
  3. By: Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
    Abstract: We use transaction-level US import data to compare firms from virtually all countries in the world competing in a single destination market. Guided by a simple theoretical framework, we decompose countries. market shares into the contribution of the number of firm-products, their average attributes (quality and efficiency) and heterogeneity around the mean. To further explore the role of exceptional firms, we also develop a novel decomposition that separates the contribution of heterogeneity from that of granularity. Our results show that the number of firm- products explains half of the variation in sales, while the remaining part is equally accounted for by average attributes and their dispersion. Quality is the main driver of firm heterogeneity. While individual firms matter, we find that heterogeneity is more important than granularity for explaining sales. We then study how the distribution of firm-level characteristics varies across countries, and we explore some of its determinants. Countries with a larger market size tend to be characterized by a more dispersed distribution of firms’ sales, especially due to heterogeneity in quality. These countries also tend to be more likely to host superstar firms, although this is not the only source of higher heterogeneity.
    Keywords: US imports, firm heterogeneity, international trade, prices, quality, variety, granularity
    JEL: F12 F14
    Date: 2019
  4. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University)
    Abstract: We theoretically analyse the relationship between Corporate Social Responsibility (CSR) and tax avoidance of an oligopolistic firm. The firm maximises a weighted sum of profits and a CSR objective which depends on output and the firm's contribution to public good provision, i.e. tax payments. Making one CSR element more important induces the firm to adhere less to the other and to reduce tax avoidance. Hence, simultaneously a substitutive and a complementary relationship between CSR and tax avoidance can be observed. Therefore, employing composite indicators of CSR prevents an empirical identification of this linkage. Moreover, if tax avoidance declines, CSR activities will increase. Consequently, the overall link between CSR and tax avoidance is theoretically ambiguous.
    Keywords: Corporate Social Responsibility, Public Good, Oligopoly, Output, Tax Avoidance
    JEL: H26 L13 L31 M14
    Date: 2018–09
  5. By: Molina-Domene, Maria
    Abstract: This paper investigates why labor specialization brings additional frictions to the labor market. The intuition is that labor specialized firms rely on complementarity and firm-specific human capital, assigning high value to the worker-employer match. Consistent with employees' importance, the findings show that specialized firms preserve their workforce: these firms labor hoard and increase wages during slow-downs. Additionally, when specialized firms unexpectedly face a labor supply shock | albeit managing to decrease the wages of the remaining co-workers, they become less productive. Overall, the empirical evidence suggests that frictions introduce bilateral monopoly rents.
    Keywords: labor specialization; market frictions; division of labor; human capital
    JEL: J24 J42 J63
    Date: 2018–10
  6. By: Andrew B. Bernard; Emmanuel Dhyne; Glenn Magerman; Kalina B. Manova; Andreas Moxnes
    Abstract: This paper quantifies the origins of firm size heterogeneity when firms are interconnected in a production network. Using the universe of buyer-supplier relationships in Belgium, the paper develops a set of stylized facts that motivate a model in which firms buy inputs from upstream suppliers and sell to downstream buyers and final demand. Larger firm size can come from high production capability, more or better buyers and suppliers, and/or better matches between buyers and suppliers. Downstream factors explain the vast majority of firm size heterogeneity. Firms with higher production capability have greater market shares among their customers, but also higher input costs and fewer customers. As a result, high production capability firms have lower sales unconditionally and higher sales conditional on their input prices. Counterfactual analysis suggests that the production network accounts for more than half of firm size dispersion. Taken together, our results suggest that multiple firm attributes underpin their success or failure, and that models with only one source of firm heterogeneity fail to capture the majority of firm size dispersion.
    Keywords: production networks, productivity, firm size heterogeneity
    JEL: F10 F12 F16
    Date: 2019
  7. By: Li, Zhan
    Abstract: Shareholder activism increases the non-target firm’s outside option and reduces its CEO’s outside option, which leads to higher firm profit and lower CEO compensation. Due to this positive externality, the activist’s intervention is inefficiently low. Several extensions further generate a number of novel insights: The liquidity of the CEO talent market exacerbates the externality; common ownership alleviates the externality but exacerbates the free-rider problem, ultimately reducing market efficiency; regulating activists’ interventions decreases market efficiency when similar firms compete for different CEO talents.
    Keywords: Shareholder activism, externality, common ownership.
    JEL: G14 G34
    Date: 2017–08–07
  8. By: Rudanko, Leena (Federal Reserve Bank of Philadelphia)
    Abstract: This paper studies a labor market with directed search, where multi-worker firms follow a firm wage policy: They pay equally productive workers the same. The policy reduces wages, due to the influence of firms’ existing workers on their wage setting problem, increasing the profitability of hiring. It also introduces a time-inconsistency into the dynamic firm problem, because firms face a less elastic labor supply in the short run. To consider outcomes when firms reoptimize each period, I study Markov perfect equilibria, proposing a tractable solution approach based on standard Euler equations. In two applications, I first show that firm wages dampen wage variation over the business cycle, amplifying that in unemployment, with quantitatively significant effects. Second, I show that firm wage firms may find it profitable to fix wages for a period of time, and that an equilibrium with fixed wages can be good for worker welfare, despite added volatility in the labor market.
    Keywords: Labor Market Search; Business Cycles; Wage Rigidity; Competitive Search; Limited Commitment
    JEL: E24 E32 J41 J64
    Date: 2019–01–22
  9. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: In this paper we investigate the quantitative importance of collective agreements in explaining uctuations in Bulgarian labor markets. Following Maffezzoli (2001), we introduce a monopoly union in a real-business-cycle model with government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016), and compare and contrast it to a model with indivisible labor and no unions as in Rogerson and Wright (1988). We find that the sequential bargaining between unions and firms produces an important internal propagation mechanism, which fits data much better that the alternative framework with indivisible labor.
    Keywords: business cycles, general equilibrium, labor unions, indivisible labor, involuntary unemployment.
    JEL: E32 E24 J23 J51
    Date: 2019–01
  10. By: Chen, Jiaqi; Lee, Sang-Ho; Muminov, Timur
    Abstract: This paper considers time-inconsistent output subsidy/tax policies in free-entry mixed markets and compares committed and non-committed regimes under different competition modes. In a committed regime where the subsidy is determined before the private firms enter the market, the optimal rate is zero in either Cournot game or Stackelberg game when the public firm is a follower, while it is negative in Stackelberg game with public leadership. However, in the non-committed regime where the subsidy is not determined before entry, the optimal rate is always positive. Finally, we show that private leadership is the best for social welfare regardless of the timing of output subsidy/tax policies.
    Keywords: Free-entry mixed market, Committed policy, Non-committed policy, Output subsidy
    JEL: H20 H42 L13
    Date: 2019–01–14
  11. By: Impullitti, Giammario; Licandro, Omar; Rendhal, Pontus
    Abstract: We study the gains from trade in a new model with oligopolistic competition, firm heterogeneity, and innovation. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Trade liberalisation can also reduce the number of firms competing in each market, thereby increasing markups on both domestic and export sales. For the majority of exporters, however, the pro- competitive effect prevails and their average markups decline. The incomplete pass-though and the reduction in the number of competitors instead dominate for top-exporters – the top 0.1% of firms – which end up increasing their markup. In a quantitative exercise we find that the aggregate effect of trade-induced markup changes is pro-competitive and accounts for the majority of the welfare gains from trade. Trade-induced changes in competition affect survival on domestic and export markets and firms’ decision to innovate. All exporters, and especially the top exporters, increase their market size after liberalisation which, in turn, encourages them to innovate more. Hence, top exporters contribute negatively to welfare gains by increasing their markups but positively by increasing innovation and productivity. Firms’ innovation response accounts for a small but non-negligible share of the welfare gains while the contribution of selection is U-shaped, being negative for small liberalisations and positive otherwise. A more globalised economy is therefore populated by larger, fewer and more innovative firms, each feature representing an important source of the gains from trade.
    Keywords: gains from trade; heterogeneous firms; oligopoly; innovation; endogenous markups; endogenous market structure
    JEL: F12 F13 O31 O41
    Date: 2018–12
  12. By: Colonnello, Stefano; Koetter, Michael; Stieglitz, Moritz
    Abstract: Theoretically, bank's loan monitoring activity hinges critically on its capitalisation. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank-firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalised banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands-off approach is associated with improved borrowers' performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.
    Keywords: bank monitoring,covenant violations,syndicated loans,business cycle
    JEL: G21 G32 G33 G34
    Date: 2019
  13. By: Morasch, Karl
    Abstract: The decision over exports vs. foreign direct investment (FDI) is usually discussed in an extension of the so-called Melitz model where firms with heterogeneous costs compete in a monopolistically competitive industry. The present paper starts from a situation where a potential foreign entrant would be just indifferent between exports and FDI in such a setting. However, by assuming oligopolistic interaction, strategic considerations are also taken into account. It is shown how the strategic impact of lower marginal cost makes FDI more attractive in a Cournot setting while exports are preferable under price competition in a market with differentiated goods. Beyond that it is also explored how a strategic alliance with a local incumbent could be a superior alternative for market entry.
    Keywords: Entry strategies,Trade,FDI,Alliances,Oligopoly
    JEL: D43 L11 L41
    Date: 2018
  14. By: Kalnins, Arturs; Lin, Stephen F.; Thomas, Catherine
    Abstract: This paper analyzes how firms are organized in the U.S. hotel management industry. For most hotel brands, properties with intermediate room occupancy rates are relatively more likely to be managed by company employees rather than by independent franchisees. Properties with the lowest and the highest occupancy rates tend to be managed by franchisees, at arm's length from the hotel chain. This variation in organizational form is consistent with a model in which the incentives embodied in management contracts vary with property-level productivity. We infer that most hotel chains franchise low productivity relationships to keep property-level fixed costs low and franchise the most productive relationships to create high-powered incentives for franchisees. Franchisees of high-productivity properties work harder than the managers of both chain-managed properties and low-productivity franchises because the performance incentives in franchise contracts are proportional to hotel revenues and complement the incentives arising from having control over the property.
    Keywords: firm heterogeneity; firm structure; incomplete contracts; outsourcing
    JEL: D2 D23 F12 L23
    Date: 2018–10
  15. By: Suqin Ge (Department of Economics, Virginia Tech.); Andrea Moro (Department of Economics, University Of Venice Cà Foscari; Department of Economics, Vanderbilt University); Beibei Zhu (Slack)
    Abstract: We test the implications of a statistical discrimination model with asymmetric learning. Firms receive signals of productivity over time and may use race to infer worker’s productivity. Incumbent employers have more information about workers productivity than outside employers. Using data from the NLSY79, we find evidence of asymmetric learning. In addition, employers statistically discriminate against non-college educated black workers at time of hiring. We also find that employers directly observe most of the productivity of college graduates at hiring, and learn very little over time about these workers.
    Keywords: statistical discrimination, employer learning, asymmetric learning
    JEL: J71 D82 J31
    Date: 2018
  16. By: Blunch, Niels-Hugo (Washington and Lee University); Ribar, David C. (University of Melbourne); Western, Mark (University of Queensland)
    Abstract: Many working parents struggle to balance the demands of their jobs and family roles. Although we might expect that additional resources would ease work-family constraints, theory and evidence regarding resources have been equivocal. This study uses data on working mothers and fathers – as well as their cohabiting partners/spouses – from the Household, Income, and Labour Dynamics in Australia survey to investigate how personal resources in the form of skills, cognitive abilities, and personality traits affect work-life strains. It considers these along with standard measures of economic, social, and personal resources, and estimates seemingly unrelated regression (SUR) models of work-life strains for employed mothers and fathers that account for correlations of the couple's unobserved characteristics. The SUR estimates indicate that computer skills reduce work-life strains for mothers, that math skills reduce strains for fathers, and that the personality traits of extraversion, conscientiousness, and emotional stability reduce strains for both parents. However, the estimates also indicate that better performance on a symbol look-up task, which tests attention, visual scanning acuity, and motor speed, increases fathers' work-life strains.
    Keywords: work-family strains and gains, cognitive abilities, skills, household resources, Australia, HILDA survey
    JEL: I1 I31 J24 J81
    Date: 2018–12
  17. By: Kinne, Jan; Lenz, David
    Abstract: Innovation is considered as a main driver of economic growth. Promoting the development of innovation through STI (science, technology and innovation) policies requires accurate indicators of innovation. Traditional indicators often lack coverage, granularity as well as timeliness and involve high data collection costs, especially when conducted at a large scale. In this paper, we propose a novel approach on how to create firm-level innovation indicators at the scale of millions of firms. We use traditional firm-level innovation indicators from the questionnaire-based Community Innovation Survey (CIS) survey to train an artificial neural network classification model on labelled (innovative/non-innovative) web texts of surveyed firms. Subsequently, we apply this classification model to the web texts of hundreds of thousands of firms in Germany to predict their innovation status. Our results show that this approach produces credible predictions and has the potential to be a valuable and highly cost-efficient addition to the existing set of innovation indicators, especially due to its coverage and regional granularity. The predicted firm-level probabilities can also directly be interpreted as a continuous measure of innovativeness, opening up additional advantages over traditional binary innovation indicators.
    Keywords: Web Mining,Web Scraping,R&D,R&I,STI,Innovation,Indicators,Text Mining,Natural Language Processing,NLP,Deep Learning
    JEL: O30 C81 C83
    Date: 2019

This nep-bec issue is ©2019 by Vasileios Bougioukos. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.