nep-bec New Economics Papers
on Business Economics
Issue of 2019‒04‒08
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. Monetary Policy, Corporate Finance and Investment By James Cloyne; Clodomiro Ferreira; Maren Froemel; Paolo Surico
  2. The Chinese are Here: Firm Level Analysis of Import Competition and Performance in Sub-Saharan Africa By Darko, Christian K.; Occhiali, Giovanni; Vanino, Enrico
  3. Technology, Market Structure and the Gains from Trade By Impullitti, G.; Licandro, O., Rendahl, P.; Rendahl, P.
  4. Measuring the Effects of Advertising on Green Industry Sales: A Generalized Propensity Score Approach By Yajuan Li; Marco A. Palma; Charles R. Hall; Hayk Khachatryan; Oral Capps, Jr.
  5. Global financial cycles since 1880 By Potjagailo, Galina; Wolters, Maik H.
  6. Endogenous choice of minority shareholdings: Effects on product market competition By Samuel de Haas
  7. Firm Size, Corporate Debt, R&D Activity, and Agency Costs: Exploring Dynamic and Non-Linear Effects By Giorgio Canarella; Stephen M. Miller
  8. The Patent Troll: Benign Middleman or Stick-Up Artist? By David S. Abrams; Ufuk Akcigit; Gokhan Oz; Jeremy G. Pearce
  9. Bits and bolts: The digital transformation and manufacturing By Matej Bajgar; Sara Calligaris; Flavio Calvino; Chiara Criscuolo; Jonathan Timmis
  10. What gains and distributional implications result from trade liberalization? By Bas, Maria; Paunov, Caroline
  11. Determinants of Optimal Capital Structure and Speed of Adjustment: Evidence from the U.S. ICT Sector By Giorgio Canarella; Stephen M. Miller

  1. By: James Cloyne (University of California Davis, NBER and CEPR); Clodomiro Ferreira (Banco de españa); Maren Froemel (London Business School); Paolo Surico (London Business School, Bank of England and CEPR)
    Abstract: We provide new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most signifcant change in capital expenditure – even after conditioning on size, asset growth, Tobin’s Q, leverage or liquidity – and drive the response of aggregate investment. Older companies, in contrast, hardly react at all. After a monetary policy tightening, net worth falls considerably for all firms but borrowing declines only for younger non-dividend payers, as their external finance is mostly exposed to asset value fluctuations. Conversely, cash-flows change less markedly and more homogeneously across groups. Our findings highlight the role of firm finance and financial frictions in amplifying the effects of monetary policy on investment.
    Keywords: monetary policy, financial frictions, firm finance, investment
    JEL: E22 E32 E52
    Date: 2019–03
  2. By: Darko, Christian K.; Occhiali, Giovanni; Vanino, Enrico
    Abstract: This study uses firm level data on 19 Sub-Saharan Africa countries between 2004 and 2016 to provide a rigorous analysis on the impact of Chinese import competition on productivity, skills, and performance of firms., We measure import competition and ports accessibility at the city-industry level to identify the relevance of firms’ location in determining the impact of Chinese imports competition. To address endogeneity concerns, a time-varying instrument for Chinese imports based on the interaction between an exogenous geographic characteristic and a shock in transportation technology is developed. The results show that imports competition has a positive impact on firm performance, mainly in terms of productivity catch-up and skills upgrading. Of particular interest is the finding that the effects of import competition from China are stronger for more remote firms that have lower port accessibility, an indication that Chinese imports in remote areas improves productivity of laggard firms, employment, and intensity of skilled workers. Our findings indicate that African firms are improving their performance as a consequence of the higher Chinese import intensity, mainly through direct competition and the use of higher quality inputs of production sourced from China.
    Keywords: Research Methods/ Statistical Methods
    Date: 2018–05–24
  3. By: Impullitti, G.; Licandro, O., Rendahl, P.; Rendahl, P.
    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 procompetitive effect prevails and their avera ge 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: 2018–11–26
  4. By: Yajuan Li; Marco A. Palma; Charles R. Hall; Hayk Khachatryan; Oral Capps, Jr.
    Abstract: This article estimates the effects of advertising expenditures on annual gross sales of green industry firms using a quasi-experimental framework. In order to account for potential selection bias, a generalized propensity score and a dose-response function are used to estimate advertising treatment effects. The method used allows us to investigate the relationship between the dose (advertising expenditures) and the response (firm sales). We use data from the National Green Industry Surveys of 2009 and 2014 to conduct the analysis. To further investigate potential heterogeneous advertising effects of the size of the firms, we separate the sample into small firms and large firms, according to their annual gross sales. The results indicate that the magnitude and shape of the response function depend on the size of the firm. For small firms, increasing advertising spending yields to higher sales within a range of advertising spending. Beyond this range, advertising spending increases do not impact sales any more. Thus, small firms’ management should carefully monitor advertising input. For large firms, on the other hand, the current evidence does not support a positive relationship between advertising spending and sales since the marginal treatment effect is insignificant almost over the entire range of adverting spending.
    Keywords: Agribusiness, Crop Production/Industries
    Date: 2018–10–12
  5. By: Potjagailo, Galina; Wolters, Maik H.
    Abstract: We analyze cyclical co-movement in credit, house prices, equity prices, and long-term interest rates across 17 advanced economies. Using a time-varying multi-level dynamic factor model and more than 130 years of data, we analyze the dynamics of co-movement at different levels of aggregation and compare recent developments to earlier episodes such as the early era of financial globalization from 1880 to 1913 and the Great Depression. We find that joint global dynamics across various financial quantities and prices as well as variable-specific global co-movements are important to explain fluctuations in the data. From a historical perspective, global co-movement in financial variables is not a new phenomenon, but its importance has increased for some variables since the 1980s. For equity prices, global cycles play currently a historically unprecedented role, explaining more than half of the fluctuations in the data. Global cycles in credit and housing have become much more pronounced and longer, but their importance in explaining dynamics has only increased for some economies including the US, the UK and Nordic European countries. We also include GDP in the analysis and find an increasing role for a global business cycle.
    Keywords: financial cycles,global co-movement,dynamic factor models,time-varying parameters,macro-finance
    JEL: C32 C38 E44 F44 G15 N10 N20
    Date: 2019
  6. By: Samuel de Haas (Justus-Liebig-University Giessen)
    Abstract: Non-controlling minority shareholdings in rivals (NCMS) lower the sustainability of collusion under a wide variety of circumstances. Nevertheless, NCMS are sometimes deemed to facilitate collusion, in particular if the level of NCMS is exogenous. The present paper endogenizes firms' choice of NCMS and answers the question: Would colluding firms find it rational to acquire NCMS in rivals? The study of the acquisition reveals that firms have an incentive to acquire NCMS which are accompanied by a shift from collusive to competitive behaviour.
    Keywords: Collusion, Coordinated Effects, Minority Shareholdings, Merger Control, Unilateral Effects
    JEL: G34 K21 L41
    Date: 2019
  7. By: Giorgio Canarella (University of Nevada, Las Vegas); Stephen M. Miller (University of Nevada, Las Vegas)
    Abstract: This paper empirically investigates firm-specific determinants of agency costs, a relatively new and unexplored area in corporate finance. We estimate dynamic agency costs models, linking debt, firm size, and R&D activity to agency costs for a panel of U.S. information and communication technology (ICT) firms over 1990-2013. We adopt the Blundell and Bond (1998) two-step system GMM technique, which explicitly accounts for persistence, endogeneity, and unobservable firm heterogeneity. We provide the first evidence that our inverse proxy for agency costs, namely asset turnover (Ang, et al., 2000), exhibits an inverted U-shaped relationship with debt and a U-shaped relationship with firm size and R&D activity. These findings imply that agency costs experience a minimum value (in case of debt) and a maximum value (in case of firm size and R&D activity) and, therefore, that agency costs are higher at both low and high levels of debt, and lower at both low and high levels of firm size and R&D activity. We find that the level of debt of the average firm in the sample falls below the level that minimizes agency costs. We also document that, consistent with the agency literature, short-term debt provides an additional effective monitoring mechanism to alleviate agency costs. Our findings reveal that agency costs are dynamic in nature, mean-reverting, and persistent over time. This notion confirms the Florackis and Ozkan (2009) conjecture that managers behave as though an optimal level of agency costs exist that they pursue. Finally, we find a positive association between firm profitability and agency costs and a negative association between agency costs and firm growth. Extensive additional analysis confirms the robustness of our results.
    Keywords: ICT industry; agency costs; non-linearity; dynamic adjustment; system GMM
    JEL: G21 G28 G32 G34
    Date: 2019–03
  8. By: David S. Abrams; Ufuk Akcigit; Gokhan Oz; Jeremy G. Pearce
    Abstract: How do non-practicing entities ("Patent Trolls") impact innovation and technological progress? Although this question has important implications for industrial policy, little direct evidence about it exists. This paper provides new theoretical and empirical evidence to fill that gap. In the process, we inform a debate that has historically portrayed non-practicing entities (NPEs) as either "benign middlemen", who help to reallocate IP to where it is most productive, or "stick-up artists", who exploit the patent system to extract rents and thereby hurt innovation. We employ unprecedented access to NPE-derived patent and financial data, as well as a novel model that guides our data analysis. We find that NPEs acquire patents from small firms and those that are more litigation-prone, as well as ones that are not core to the seller's business. When NPEs license patents, those that generate higher fees are closer to the licensee's business and more likely to be litigated. We also find that downstream innovation drops in fields where patents have been acquired by NPEs. Finally, our numerical analysis shows that the existence of NPEs encourages upstream innovation and discourages downstream innovation. The overall impact of NPEs depends on the share of patent infringements that come from non-innovating producers. Our results provide some support for both views of NPEs and suggests that a more nuanced perspective on NPEs and additional empirical work are needed to make informed policy decisions.
    JEL: O31 O34
    Date: 2019–03
  9. By: Matej Bajgar (OECD); Sara Calligaris (OECD); Flavio Calvino (OECD); Chiara Criscuolo (OECD); Jonathan Timmis (OECD)
    Abstract: The digital transformation forces a re-think of government policy as manufacturing business models increasingly transition from “bolts” to “bits”. The road to Industry 4.0 implies important and pervasive changes in business dynamics, firm growth and the nature of competition. This report presents a framework for measuring the digital transformation of manufacturing industries, and maps the impact of digital technologies across these several dimensions: firm productivity growth, business dynamism, industry concentration, firm mark-ups and mergers and acquisition activity. It suggests policies that governments can use to facilitate digital adoption and reap the benefits of the digital revolution in manufacturing.
    Date: 2019–04–05
  10. By: Bas, Maria (University of Paris 1, Centre d'Economie de la Sorbonne (CES)); Paunov, Caroline (OECD, Directorate for Science, Technology and Innovation)
    Abstract: This paper investigates the distributional impacts of trade liberalization across firms, consumers and workers. Using firm-product-level census data for Ecuador, we exploit exogenous tariff changes at entry to the World Trade Organization. We show that with input tariff cuts firms access higher quality and new input varieties. Consequently, firms increase their product scope and quality, while their production’s skill-intensity increases and costs decrease. “Real” productivity (TFPQ) increases only in the medium run, following adjustments to produce more and higher quality products. Positive immediate revenue productivity (TFPR) gains result because firms’ markups increase. Consumers still gain as quality-adjusted prices decrease and varieties increase. Workers benefit differentially: skilled workers’ wages rise compared to less skilled workers’ wages. Input-tariff liberalization also has distributional impacts across firms. Only more productive firms with high markups increase product scope and quality and gain market shares. With output-trade liberalization the least productive firms decrease their product scope.
    Keywords: gains from trade, input and output tariff reductions, product scope, product quality, market share, quantity and revenue total factor productivity, TFPQ, TFPR, skills premium, Ecuador
    JEL: F16 O30 D22 O12 O54 L60
    Date: 2019–02–13
  11. By: Giorgio Canarella (University of Nevada, Las Vegas); Stephen M. Miller (University of Nevada, Las Vegas)
    Abstract: We employ a dynamic adjustment model (Flannery and Rangan, 2006) to investigate the determinants of capital structure and speed of adjustment (Drobetz and Wanzenried, 2006) in a panel of 85 U.S. ICT firms over the years 1990 to 2013. We estimate the capital structure using a wide range of factors commonly used in the empirical literature (growth and investment opportunities, profitability, firm size, default risk, and industry median capital structure). We expand on this literature to include two additional determinants: asset turnover, an inverse measure of firm agency costs (Morellec, et al., 2012; Ang, Cole, and Lin, 2000), and R&D activity (Aghion, et al., 2004). We find that the speed of adjustment increases with firm size, growth opportunities, and distance from the target capital structure, and decreases with default risk and agency costs. We also find that R&D expenditures and agency costs cause firms to maintain lower levels of debt. We employ four recently developed estimators in dynamic panel-data econometrics: the double-censored fractional estimator (Elsas and Florysiak, 2011), the bias-corrected least-squares dummy-variable estimator (Bruno, 2005), the iterative bootstrap-based bias correction for the fixed-effects estimator (Everaert and Pozzi, 2007), and the fixed-effects quasi-maximum-likelihood estimator (Kripfganz, 2016; Hsiao, et al., 2002). In addition, our panel-data regression results show that in the ICT sector, the leverage ratio exhibits high persistence. Moreover, it positively relates to growth and investment opportunities, firm size, capital investment, and industry median capital structure, and negatively relates to profitability and default risk.
    Keywords: ICT industry; agency costs; optimal capital structure, dynamic modeling
    JEL: G21 G28 G32 G34
    Date: 2019–03

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.