nep-bec New Economics Papers
on Business Economics
Issue of 2019‒02‒25
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Organizational Capital, Corporate Leadership, and Firm Dynamics By Dessein, Wouter; Prat, Andrea
  2. Debt overhang, rollover risk, and corporate investment: evidence from the European crisis By Kalemli-Ozcan, Sebnem; Laeven, Luc; Moreno, David
  3. The Origins of Firm Heterogeneity: A Production Network Approach By Bernard, Andrew B.; Dhyne, Emmanuel; Magerman, Glenn; Manova, Kalina; Moxnes, Andreas
  4. Investment climate, outward orientation and manufacturing firm productivity: New empirical evidence By Mai Nguyen; Marie-Ange Veganzones-Varoudakis
  5. Works Councils, Training and Employee Satisfaction By Lutz Bellmann; Olaf Hübler; Ute Leber
  6. Breaking the shackles: Zombie firms, weak banks and depressed restructuring in Europe By Andrews, Dan; Petroulakis, Filippos
  7. Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports By Crowley, Meredith A; Exton, Oliver; Han, Lu
  8. Vertical Integration and Foreclosure: Evidence from Production Network Data By Johannes Boehm; Jan Sonntag
  9. Heterogeneity, Measurement Error, and Misallocation: Evidence from African Agriculture By Gollin, Douglas; Udry, Christopher
  10. Corporate Capture of Blockchain Governance By Ferreira, Daniel; Li, Jin; Nikolowa, Radoslawa
  11. Dividends from Unrealized Earnings and Default Risk By Ester Chen; Ilanit Gavious; Nadav Steinberg
  12. Search Frictions in International Good Markets By Lenoir, Clemence; Martin, Julien; Mejean, Isabelle

  1. By: Dessein, Wouter; Prat, Andrea
    Abstract: We argue that economists have studied the role of management from three perspectives: contingency theory (CT), an organization-centric empirical approach (OC), and a leader-centric empirical approach (LC). To reconcile these three perspectives, we augment a standard dynamic firm model with organizational capital, an intangible, slow-moving, productive asset that can only be produced with the direct input of the firm's leadership and that is subject to an agency problem. We characterize the steady state of an economy with imperfect governance, and show that it rationalizes key findings of CT, OC, and LC, as well as generating a number of new predictions on performance, management practices, CEO behavior, CEO compensation, and governance.
    Keywords: CEO; Management; Organizational Capital
    JEL: L22
    Date: 2019–02
  2. By: Kalemli-Ozcan, Sebnem; Laeven, Luc; Moreno, David
    Abstract: We quantify the role of financial factors behind the sluggish post-crisis performance of European firms. We use a firm-bank-sovereign matched database to identify separate roles for firm and bank balance sheet weaknesses arising from changes in sovereign risk and aggregate demand conditions. We find that firms with higher debt levels and a higher share of short-term debt reduce their investment more after the crisis. This negative effect is stronger for firms linked to weak banks with exposures to sovereign risk, signifying increased rollover risk. These financial channels explain about 60% of the decline in aggregate corporate investment. JEL Classification: E22, E32, E44, F34, F36, G32
    Keywords: bank-sovereign nexus, debt maturity, firm investment, rollover risk
    Date: 2019–02
  3. By: Bernard, Andrew B.; Dhyne, Emmanuel; Magerman, Glenn; Manova, Kalina; Moxnes, Andreas
    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: firm size heterogeneity; production networks; productivity
    JEL: F10 F12 F16
    Date: 2019–01
  4. By: Mai Nguyen (KU Leuven - Katholieke Universiteit Leuven); Marie-Ange Veganzones-Varoudakis (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Drawing on the World Bank Enterprise Surveys (WBES), we revisit the link between investment climate and firm productive performance for a panel of enterprises surveyed twice in 70 developing countries and 11 manufacturing industries. We take advantage of the surveys done at different times in an increasing number of economies, to tackle the endogeneity issue which has been seen as a problem in previous studies. We also use pertinent econometric techniques to address other biases inherent in the data, in particular measurement errors, missing observations, and multicollinearity. Our results reinforce previous findings by validating, with a larger than usual sample of countries and industries, the importance of a larger set of environment variables. We show that infrastructure quality (Infra), information and communication technologies (ICT), skills and experience of the labor force (H), cost of and access to financing (Fin), security and political stability (CrimePol), competition (Comp) and government relation (Gov) contribute to firms' and countries' different performances. The empirical analysis also illustrates that firms which chose an outward orientation have higher productivity levels. Nevertheless, outward oriented enterprises are, at the same time, more sensitive to investment climate limitations. These findings have important policy implications by showing which dimensions of the business environment, in which industry, could help manufacturing firms to be more competitive in the present context of increasing globalization.
    Keywords: Investment climate,Outward orientation,Manufacturing,Total factor productivity,Firm survey data.
    Date: 2019–02–11
  5. By: Lutz Bellmann; Olaf Hübler; Ute Leber
    Abstract: This paper investigates the role of works councils in job satisfaction. Using the recently developed Linked Personnel Panel, we consider both the direct and indirect impact via further training. Basic estimates on an individual level do not reveal clearly direct effects, but on an establishment level, the existence of a works council increases the average job satisfaction in a company. In more extended approaches, we also find a positive, weakly significant link on an individual level accompanied by positive training with regard to job satisfaction if we control for personal characteristics, working conditions, firm size, collegiality variables and industry dummies. Firms with industry-wide bargaining agreements drive this result. The effects are stronger if the firm carries the training costs and if the share of trained workers within the firm measures training. The direct impact of works councils remains positive but becomes insignificant if Lewbel’s instrumental variables estimator is applied.
    Keywords: job satisfaction; training; works councils
    JEL: J24 J28 J53
    Date: 2019
  6. By: Andrews, Dan; Petroulakis, Filippos
    Abstract: This paper explores the connection between ”zombie” firms (firms that would typically exit in a competitive market) and bank health and the consequences for aggregate productivity in 11 European countries. Controlling for cyclical effects, the results show that zombie firms are more likely to be connected to weak banks, suggesting that the zombie firm problem in Europe may at least partly stem from bank forbearance. The increasing survival of zombie firms congests markets and constrains the growth of more productive firms, to the detriment of aggregate productivity growth. Our results suggest that around one-third of the impact of zombie congestion on capital misallocation can be directly attributed to bank health and additional analysis suggests that this may partly be due to reduced availability of credit to healthy firms. Finally, improvements in bank health are more likely to be associated with a reduction in the prevalence of zombie firms in countries where insolvency regimes do not unduly inhibit corporate restructuring. Thus, leveraging the important complementarities between bank strengthening efforts and insolvency regime reform would contribute to breaking the shackles on potential growth in Europe. JEL Classification: D24, G21, L25, O47
    Keywords: credit constraints, factor reallocation, productivity, zombie firms
    Date: 2019–02
  7. By: Crowley, Meredith A; Exton, Oliver; Han, Lu
    Abstract: The renegotiation of a trade agreement introduces uncertainty into the economic environment. In June 2016 the British electorate unexpectedly voted to leave the European Union, introducing a new era in which the UK and EU began to renegotiate the terms of the UK-EU trading relationship. We exploit this natural experiment to estimate the impact of uncertainty associated with trade agreement renegotiation on the export participation decision of firms in the UK. Starting from the Handley and Limao (2017) model of exporting under trade policy uncertainty, we derive testable predictions of firm entry into (exit from) a foreign market under an uncertain `renegotiation regime'. Empirically, we develop measures of the trade policy uncertainty facing firms exporting from the UK to the EU after June 2016. Using the universe of UK export transactions at the firm and product level, and cross-sectional variation in `threat point' tariffs, we estimate that in 2016 over 5300 exporters did not enter into exporting new products to the EU, whilst over 5400 exporters exited from exporting products to the EU. Entry (exit) in 2016 would have been 5.0% higher (6.1% lower) if firms exporting from the UK to the EU had not faced increased trade policy uncertainty after June 2016.
    Keywords: export participation; extensive margin of trade; Trade agreement; Trade policy uncertainty
    JEL: F13 F14
    Date: 2019–01
  8. By: Johannes Boehm (Département d'économie); Jan Sonntag (Département d'économie)
    Abstract: This paper studies the prevalence of vertical market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers’ competitors than when they vertically integrate with an unrelated firm. This relationship holds also, among other things, when conditioning on mergers that follow exogenous downward pressure on the supplier’s stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumored or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place.
    Keywords: Mergers and acquisitions; Market foreclosure; Vertical integration; Production networks
    JEL: L14 L42
    Date: 2018–12
  9. By: Gollin, Douglas; Udry, Christopher
    Abstract: Standard measures of productivity display enormous dispersion across farms in Africa. Crop yields and input intensities appear to vary greatly, seemingly in conflict with a model of efficient allocation across farms. In this paper, we present a theoretical framework for distinguishing between measurement error, unobserved heterogeneity, and potential misallocation. Using rich panel data from farms in Tanzania and Uganda, we estimate our model using a flexible specification in which we allow for several kinds of measurement error and heterogeneity. We find that measurement error and heterogeneity together account for a large fraction - as much as ninety percent -- of the dispersion in measured productivity. In contrast to some previous estimates, we suggest that the potential for efficiency gains through reallocation of land across farms and farmers may be relatively modest.
    Keywords: agricultural development; agricultural production function estimation; Agricultural Productivity; firm productivity dispersion; Misallocation; productivity measurement
    JEL: O11 O12 O13 Q12
    Date: 2019–01
  10. By: Ferreira, Daniel; Li, Jin; Nikolowa, Radoslawa
    Abstract: We develop a theory of blockchain governance. In our model, the proof-of-work system, which is the most common set of rules for validating transactions in blockchains, creates an industrial ecosystem with specialized suppliers of goods and services. We analyze the two-way interactions between blockchain governance and the market structure of the industries in the blockchain ecosystem. Our main result is that the proof-of-work system leads to a situation where the governance of the blockchain is captured by a large firm.
    Keywords: blockchain; governance; Industrial Ecosystem; Proof-of-Work
    JEL: G30 L13 M20
    Date: 2019–01
  11. By: Ester Chen (Peres Academic Center); Ilanit Gavious (Ben-Gurion University); Nadav Steinberg (Bank of Israel)
    Abstract: Using hand-collected data on Israeli firms’ unrealized earnings and debt restructurings following adoption of the IFRS, we investigate whether and how dividend payments based on unrealized revaluation earnings affect a firm’s default risk. Our results indicate that in the era of fair value accounting, the origin of the dividend payout—coming from unrealized versus realized earnings—has a significant effect on a firm’s default risk above and beyond the effect of the extent of the payment. Specifically, controlling for various determinants of financial risk, including the amount of the dividends paid (originating from either realized or unrealized earnings), companies are over three times more likely to subsequently require debt restructuring if they distribute dividends based on unrealized earnings. However, this enhanced risk seems to be mispriced by the market; firms that distribute dividends based on unrealized earnings exhibit an insignificantly different cost of debt than firms that never do so.
    Keywords: cost of debt, default risk, dividends, fair value accounting
    JEL: M21 M41 G35
    Date: 2017–06
  12. By: Lenoir, Clemence; Martin, Julien; Mejean, Isabelle
    Abstract: This paper studies how search frictions in international good markets can distort competition between firms of heterogeneous productivity. We add bilateral search frictions between buyers and sellers in a Ricardian model of trade. Search frictions prevent buyers from identifying the most productive sellers which induces competitive distortions and benefits low-productivity firms at the expense of high-productivity ones. We use French firm-to-firm trade data and a GMM estimator to recover search frictions faced by French exporters at the product and destination level. They are found more severe in large and distant countries and for products that are more differentiated. In a counterfactual exercise, we show that reducing the level of search frictions leads to an improvement in the efficiency of the selection process because the least productive exporters are pushed out of the market while the export probability and the conditional value of exports increase at the top of the productivity distribution. As a consequence, the mean productivity of exporters increases significantly.
    Keywords: firm-to-firm trade; Ricardian trade model; search frictions; structural estimation
    JEL: F10 F11 F14 L15
    Date: 2019–01

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