nep-bec New Economics Papers
on Business Economics
Issue of 2019‒11‒11
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. Pay, Employment, and Dynamics of Young Firms By Babina, Tania; Ma, Wenting; Moser, Christian; Ouimet, Paige P.; Zarutskie, Rebecca
  2. Working Time Accounts and Turnover By Andrey Launov
  3. Long-term business relationships, bargaining and monetary policy By Mirko Abbritti; Asier Aguilera-Bravo; TommasoTrani
  4. SMES’ STRATEGIES TO FACE THE ONSET OF THE GREAT RECESSION By Juan A. Máñez Castillejo; María E. Rochina-Barrachina; Juan A. Sanchis Llopis
  5. Tying in evolving industries, when future entry cannot be deterred By Chiara Fumagalli; Massimo Motta
  6. Delivery in the city: evidence on monopolistic competition from New York restaurants By Cosman, Jacob; Schiff, Nathan
  7. Does Easing Financing Matter for Firm Performance? By Bose, Udichibarna; Mallick, Sushanta; Tsoukas, Serafeim
  8. The Economic Effects of Trade Policy Uncertainty By Dario Caldara; Matteo Iacoviello; Patrick Molligo; Andrea Prestipino; Andrea Raffo
  9. International human capital mobility and FDI: Evidence from G20 countries By Takaoka, Sumiko; Etzo, Ivan
  10. Do Multinationals Transplant Their Business Model? By Dalia Marin; Linda Rousova; Thierry Verdier
  11. FOREIGN SOURCING AND EXPORTING By Juan A. Máñez Castillejo; María E. Rochina-Barrachina; Juan A. Sanchis Llopis

  1. By: Babina, Tania (Columbia University); Ma, Wenting (University of Massachusetts Amherst); Moser, Christian (Federal Reserve Bank of Minneapolis); Ouimet, Paige P. (University of North Carolina at Chapel Hill); Zarutskie, Rebecca (Board of Governors of the Federal Reserve System)
    Abstract: Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms.
    Keywords: Young-firm pay premium; Selection; Worker and firm heterogeneity; Firm dynamics; Startups
    JEL: D22 E24 J30 J31 M13
    Date: 2019–08–05
  2. By: Andrey Launov
    Abstract: Working time account is an organization tool that allows firms to smooth their demand for hours employed. Descriptive literature suggests that working time accounts are likely to reduce layoffs and inhibit increases in unemployment during recessions. In a model of optimal labour demand I show that working time account does not necessarily guarantee less layoffs at the firm level. These may be reduced or increased depending on whether the firm meets economic downturn with surplus or deficit of hours and on how productive the firm is. In expected terms, however, working time account reduces net job destruction at almost any level of firm's productivity. Model predictions are consistent with dynamics of aggregate turnover in Germany during the Great Recession.
    Keywords: Labour demand; working hours; working time accounts; turnover; layoff; Great Recession; Germany
    JEL: J23 J63
    Date: 2019–09
  3. By: Mirko Abbritti (University of Navarra); Asier Aguilera-Bravo (Public University of Navarra and INARBE); TommasoTrani (University of Navarra)
    Abstract: A growing empirical literature documents the importance of long-term relationships and bargaining for price rigidity and firms' dynamics. This paper introduces long-term business-to-business (B2B) relationships and price bargaining into a standard monetary DSGE model. The model is based on two assumptions: first, both wholesale and retail producers need to spend resources to form new business relationships. Second, once a B2B relationship is formed, the price is set in a bilateral bargaining between firms. The model provides a rigorous framework to study the effect of long-term business relationships and bargaining on monetary policy and business cycle dynamics. It shows that, for a standard calibration of the product market, these relationships reduce both the allocative role of intermediate prices and the real effects of monetary policy shocks. We also find that the model does a good job in replicating the second moments and cross-correlations of the data, and that it improves over the benchmark New Keynesian model in explaining some of them.
    Keywords: Monetary Policy, PriceBargaining, ProductMarketSearch, B2B
    JEL: E52 E3 D4 L11
    Date: 2019–10–28
  4. By: Juan A. Máñez Castillejo (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); María E. Rochina-Barrachina (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Juan A. Sanchis Llopis (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)
    Abstract: This work analyses how SMEs (as compared to large firms) endured the onset of the recent Great Recession through the engagement in internationalization and innovation strategies. We focus on the SMEs strategies of exporting and undertaking R&D and the impact of these activities on firms’ markups (i.e., a measure of performance). This study will allow determining whether performing these strategic activities allowed SMEs to get advantages to sustain markups, not only in an expansive period but also during the hit of the hardest period of the recent financial and economic crisis. The data we use is the Spanish survey on firms’ strategies (ESEE), 1993-2009. We obtain two main results: first, for SMEs the strategies of only exporting or performing both activities explain higher markups; and, second, there is confirmation that R&D played an increasing role in protecting firms against a decrease in markups in the onset of the crisis.
    Keywords: SMEs, Exports, R&D, markups, the Great Recession
    JEL: D24 F14 O32 E32
    Date: 2019–10
  5. By: Chiara Fumagalli; Massimo Motta
    Abstract: We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when tying cannot be used as a defensive strategy to protect the incumbent's dominant position in the primary market. By engaging in tying, an incumbent firm sacrifices current profits but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home.
    Keywords: Inefficient foreclosure, Tying, Scale economies, Network Externalities
    JEL: K21 L41
    Date: 2019
  6. By: Cosman, Jacob; Schiff, Nathan
    Abstract: We examine the response to entry in a large market with differentiated products using a novel longitudinal dataset of over 550,000 New York City restaurant menus from 68 consecutive weeks. We compare “treated” restaurants facing a nearby entrant to “control” restaurants with no new competition, matching restaurants using location characteristics and a pairwise distance measure based on menu text. Restaurants frequently adjust prices and product offerings, but we find no evidence that they respond differentially to new competition. However, restaurants in the top entry decile are 5% more likely to exit after a year than restaurants in the lowest entry decile.
    Keywords: spatial competition, monopolistic competition, product differentiation, entry
    JEL: D22 D43 L13
    Date: 2019–10
  7. By: Bose, Udichibarna; Mallick, Sushanta; Tsoukas, Serafeim
    Abstract: Financial reforms have been found to be highly important in promoting aggregate productivity. Yet, the linkage between access to finance, firm-level productivity, and exporting performance has been overlooked in the literature. We fill this gap using a rich dataset of 11,612 Indian firms over the period 1988-2014 to study the impact of a unique financial policy intervention on firm performance. We document a significant effect of capital-account liberalization through the lens of an export-oriented policy initiative on firms’ productivity and consequently on their exporting activity. Finally, the beneficial effect of the policy change is more pronounced for financially vulnerable firms, as measured by high debt dependence and low levels of liquidity.
    Keywords: Productivity; Exporting; Financing; FX market liberalization
    Date: 2019–11–08
  8. By: Dario Caldara; Matteo Iacoviello; Patrick Molligo; Andrea Prestipino; Andrea Raffo
    Abstract: We study the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. We construct three measures of TPU based on newspaper coverage, firms' earnings conference calls, and aggregate data on tari rates. We document that increases in TPU reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms' export participation decisions. In the model as in the data, news and increased uncertainty about higher future tariffs reduce investment and activity.
    Keywords: Trade Policy Uncertainty ; Textual Analysis ; Tariffs ; Investment ; Uncertainty Shocks
    JEL: C1 D22 D80 E12 E32 F13 H32
    Date: 2019–09
  9. By: Takaoka, Sumiko; Etzo, Ivan
    Abstract: Human talent will be (or is already) scarce. We view international students as the source of high-skilled labour force, which satisfies the skill and task requirement of firms, particularly those anticipating overseas expansion, and argue whether the international student stock in a country is an indication of positive future prospect for the acquiror country in cross-border mergers. Using the international students’ stocks between pairs of acquiror countries of origin and target firms’ countries for bilateral mergers and acquisitions (M&A) activities, we exploit the within variation of both bilateral M&A activities and bilateral international student stocks between G20 countries. The formation of human capital signals that potential acquirors can access skilled workers and boosts the bilateral M&A activities. Results further indicate that the marginal effect of international students from target country in acquiror country has larger impact than that from acquiror country in target country.
    Keywords: FDI, G20, International students mobility
    JEL: F21 F22 G34
    Date: 2019–10–29
  10. By: Dalia Marin; Linda Rousova; Thierry Verdier
    Abstract: What determines whether or not multinational firms transplant the mode of organisation to other countries? We embed the theory of knowledge hierarchies in an industry equilibrium model of monopolistic competition to examine how the economic environment may affect the decision of multinational firms about transplanting the mode of organization to other countries. We test the theory with original and matched parent and affiliate data on the level of decentralization of 660 Austrian and German multinational firms and 2200 of their affiliate firms in Eastern Europe. We find that three factors stand out in promoting the multinational firm’s decision to transplant the organisational form to the affiliate firm in the host country: a competitive host market, the human resource policy of the multinational firm, and when an innovative technology is transferred to the host country. These factors increase the respective probabilities of organizational transfer by 7, 21, and 24 percentage points.
    Keywords: organizational economics of multinational firms, trade and organisation, the theory of the firm, organizational transfer between countries
    JEL: D23 F12 F23 F61
    Date: 2019
  11. By: Juan A. Máñez Castillejo (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); María E. Rochina-Barrachina (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Juan A. Sanchis Llopis (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)
    Abstract: The aim in this paper is analysing the role of sourcing intermediate inputs internationally on export decisions, distinguishing whether intermediate are sourced from firms belonging to the same business group or from independent suppliers. To analyse firm’s export decision, we use a specification that also accounts for sunk costs and the accumulated experience in export markets (i.e., foreign markets learning). We consider that importing intermediates might have direct and indirect effects (operating through productivity) on the export participation decision. The direct effects on exporting are isolated once we control for productivity and the effects of belonging to an international group. We use a manufacturing panel dataset drawn from the Spanish Survey on Business Strategies (ESEE) for the period 2006-2014. Both productivity and inward or outward FDI increase the probability of exporting. Moreover, our results uncover the existence of sunk costs and export markets learning, and also to the relevant role played by intermediate imports in firms’ export choices. Their effects act both through the (indirect) channel of enhancing firms’ productivity and through a direct effect related to product upgrading, more competitive selling prices, or learning from firm’s importing experience.
    Keywords: Export participation, export market learning, intermediate imports, learning from imports, inward and outward FDI, global value chains, TFP, manufacturing, firm-level data
    JEL: D24 F14 F61 L11
    Date: 2019–11

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